It has been a very challenging week for New Jersey residents, in particular for families whose homes were so ravaged by Hurricane Sandy that they have been rendered uninhabitable. In some towns, major infrastructure for gas and sewer service has been so compromised that residents of those communities may not be able to return to their homes for many months. Sadly, many people, including many residents of the hard-hit Bayshore area, are now living in squalid conditions.
A lot of people need long-term housing, right now. We can’t build it fast enough, so where are they to go? Naturally, one starts to think about all of the available homes that already exist.
As we all know, there are currently a large number of houses that are vacant and bank-owned as a result of the recession. Some may not be inhabitable – like one I’m told still has standing water left from Hurricane Irene last year – but many may be in move-in condition, or close to it.
There is the familiar adage that bankers don’t want to be in the housing business. They are not interested in being owners or landlords. They would much rather sell the properties they own to qualified buyers.
However, families now dealing with the loss of their homes and belongings don’t need the added burden of applying for a mortgage on top of everything else. Qualifying is another matter altogether, and the process can be lengthy either way.
It would be nice if we could cut through red tape and put displaced families into these houses now.
The circumstances in Sandy’s aftermath, though dire, may present an opportunity – the involvement of private insurance carriers and FEMA guarantees funding that may entice bankers and mortgage companies to enter into unique arrangements for the properties on their books. The sure source of revenue may encourage these banks to hold the mortgages on these properties or enter into long-term lease arrangements.
Though coordinating coverage with FEMA and private insurance can be tricky -- and will hinge on a number of factors including location of the damaged property, extent of damage, and cause of loss -- many residents who are now without homes will be eligible for public or private funding. Federal buy-out of condemned properties in flood zones is also an option available to some.
Some people may get funds more quickly than others. No matter what they decide to do – rebuild, buy another property, or rent – alternate long-term housing is still needed, and waiting for the funds to begin the hunt for long-term housing further delays relocation.
What I’m suggesting is that FEMA and insurers work directly with bankers to facilitate the purchase or lease bank-owned homes, relieving individuals of the need to obtain financing or wait for payouts, and putting people into homes more quickly. I am not suggesting FEMA and insurers buy properties themselves, but rather help to expedite the process by offering guarantees, for example.
There are many advantages to this approach. For one, it saves people the trouble of applying for a mortgage at a time when disorder in their lives makes it even more difficult. The guarantee of funding from FEMA & insurers would seem to reduce the need for mortgage qualification and may increase the comfort level of banks who own the vacant properties to hold the mortgages on them. Those banks may be willing to work directly with FEMA and insurers to expedite the sale or lease of properties they own.
From the perspective of insurance carriers and FEMA – who may typically make large lump sum payment to the resident due the FEMA or insurance proceeds – the arrangement may instead offer the option to make lower monthly payments (lease or loan payment) to the bank that owns the property. Replacing a large up front payment with a long term payment stream may benefit both the federal government and insurance carriers by putting them in a better financial position. This also benefits the public because smaller payout of FEMA monies or insurance proceeds now means that both public and private funding is preserved for other uses or to benefit a greater number of people.
Obviously, it would take a lot of coordination among all parties to make this happen. It is no small undertaking. The Township would need to expedite inspections, the issuance of certificates of occupancy, and any paperwork. Early release – or at least early promise – of funds would be required by FEMA and insurers. Bankers may need to accept the promise of funds, perhaps ahead of receipt, as sufficient to allow occupancy of homes. Utility companies would need to work quickly to turn on gas, water, electric and other services to these homes. A hotline should be set up and a special link on the Township’s website should be created to establish a primary portal for residents who want to take part in this program. Realtors would assist by showing the homes and acting as the point of contact for displaced residents. Frequent meetings or conference calls of the parties – FEMA, insurance company reps, Township officials, utility company reps, bankers and realtors – should occur to facilitate coordination and address any problems that arise.
Also, while I have focused on bank-owned houses thus far, vacant homes that are privately owned can also be considered for this program. However, I foresee several possible problems with this. One is that the additional coordination required to work with numerous private owners would make the administration of the program that more difficult. The private owners may not live locally, which could affect how responsive they are and could result in program delays. Coordination is also made more difficult at this time due to power and phone service outages and the fact that many of the private owners may themselves have re-located.
There are a lot of details to consider and I certainly don’t have all the answers. The laws and regulations that govern banks and insurers may dictate what is feasible. Certainly, there is no harm in bringing all the parties to the table to have a conversation about it. I think we owe that to residents.
Many will say the proposal I’ve described can’t work because it’s just not the way things are done. I say that rules can be changed and that we are limited in what we can achieve only by the extent of our creativity and determination. I see no reason why we shouldn’t explore a solution that benefits everyone.