Republicans of an optimistic variety view New Jersey Governor Chris Christie as a strong contender for the GOP presidential nomination in 2016. But before we start popping the champagne corks to celebrate, let’s take a look at how this important state has fared under his leadership. Hurricane Sandy obviously did tremendous damage to the New Jersey economy, but perhaps an equally important issue is housing.
Unemployment in NJ stood at 9.6% at the end of 2012, basically unchanged since Christie took office. Housing permits for single family and multi-family homes rose double digits in 2012, but prices for existing homes in NJ fell 2.2% in the fourth quarter, even as the national average for home prices measured by the Case Shiller index rose double digits. A big factor weighing on home prices is the weak employment situation, but the impact on the housing sector of the pro-consumer movement also is hurting NJ’s recovery.
With the passage of the Dodd-Frank law and the state attorney generals’ settlement regarding foreclosure abuse, the process of dealing with delinquent mortgages has basically ground to a halt in many states like NJ. The combination of judicial foreclosure rules, where the lender is required to go in front of a judge, and the new standards set by Dodd-Frank and the AG settlement for dealing with delinquent debtors, means that it takes lenders almost three years to get possession of a defaulted house in NJ.
When you hear realtors complaining about a lack of supply of homes for sale in states from NJ to Massachusetts, the reason very simply is that so-called consumer advocates have made it almost impossible for lenders to defend their rights. Under the AG settlement, borrowers who once lost the equity in their homes are now being handed a free gift roughly equal to half of the original value of their home. Lenders are now required to modify loans to keep borrowers in their homes, meaning that the investor – who nine times out of ten is Uncle Sam – bears the cost of the modification.
In a judicial state like NJ, defaulted mortgages trade for between 40 and 50 cents on the dollar, when they come to market. But because many banks are still struggling to deal with large volumes of delinquent loans in northeastern states, the process is painfully slow. The delay in dealing with these bad loans is depriving realtors and other service providers in NJ with badly needed jobs and income.
While some observers blame investors for the dearth of supply of existing homes for sale, the reality is that there are tens of billions of dollars’ worth of homes in the northeast that cannot come to market because of legal obstacles. There are literally thousands of vacant homes in NJ, for example, that are stuck in judicial limbo and cannot be sold. This backlog is slowing that state’s economy and job prospects.
Now consumer advocates such as CA Attorney General Kamala Harris claim that the AG settlement is a boon for consumers. But in reality the AG settlement and related state laws are not so much a public policy effort as a political movement, opines veteran CA attorney Robert Jackson. He notes that uncertainty about how to conduct foreclosures in CA and other states due to the AG settlement has caused foreclosures to literally grind to a halt. The result is higher prices for those homes that are available for sale and uncertainty for lenders in terms of new and existing loans.
Consumer advocates and their allies in the Democratic Party congratulate themselves for expropriating billions of dollars from banks, private investors and the US taxpayer under the guise of “helping consumers,” but the net effect of this social engineering in states such as NJ is to slow the process of economic restructuring and revival. Families who want to buy homes face artificially elevated prices and tough requirements from lenders who increasingly do not want to make loans to any but the most high quality borrowers.
If you cannot foreclose on a defaulted mortgage in states like NJ, NY, CT, MA or even CA, then the only course for a lender is to restrict credit to only the most high quality borrowers. Thus the real effect of the proliferation of consumer protection laws in the US is to force more and more American families to become renters instead of home owners.
If Chris Christie really wants to be President in 2016, he needs to start spending less quality time hanging around with President Barack Obama and more time talking about how the phony “consumer protection” agenda of Obama and the Democratic Party is slowing the economic recovery in NJ and many other states. Even in CA, where the housing market cleared quickly between 2009 and 2011, the cloud of the Home Owner Bill of Rights is having a profoundly negative effect on that state’s economy. If Republicans like Christie want to be competitive in 2016, we need to start talking about these issues.