New Jersey Senator to Propose Plan Aiding Subprime Borrowers

March 28 (Bloomberg) -- A New Jersey state senator wants to create a program to help homeowners refinances mortgages they can't afford, mirroring a similar plan in Ohio.

Senator Ronald Rice, a Newark Democrat, said today he plans to introduce a measure that would allow the state's housing agency to borrow at least $100 million to offer 30-year fixed- rate loans to homeowners facing foreclosure.

``Many of my neighbors face real financial peril because of rising interest rates and changes to the housing market,'' Rice said in a news release. ``More people are making late mortgage payments, missing payments altogether and going into foreclosure.''

Rice's plan follows a move by Ohio, which had the highest foreclosure rate among the 50 U.S. states at the end of 2006, to issue $100 million in taxable municipal bonds to help homeowners refinance mortgages they can't afford.

A March 13 survey by the Mortgage Bankers Association found that Ohio's foreclosure rate across all loan types was 3.38 percent while New Jersey's was 1.85 percent. The survey also showed Ohio had the highest rate of subprime loans in foreclosure at the end of 2006, at 11.32 percent, compared with New Jersey at 4.18 percent.

Subprime mortgages are granted to people with poor credit histories or high debts and often have rates at least 2 or 3 percentage points above safer prime loans.

`Teaser' Rates

Rice blamed lenders for offering low introductory ``teaser'' rates that reset higher after a certain period of time and for allowing subprime borrowers to get loans without making down payments or documenting their income.

He said the state was justified in bailing out homeowners and mortgage lenders who made the loans.

``It's going to cost us a lot more if people become homeless,'' he said in a telephone interview. ``We have a real problem out here.''

Ohio's planned bond issue will provide financing for about 1,000 loans with a fixed rate of about 6.75 percent. The loans will be limited to homeowners whose income is up to 125 percent of the median income of their county. The program also requires that the borrower reside in the home.

Rice said he still needed to work with the administration of Governor Jon Corzine to determine eligibility requirements and efforts to safeguard homeowners who refinance their loans from foreclosing again.

To contact the reporter on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net.

To contact the editor responsible for this story: Beth Williams at at bewilliams@bloomberg.net.