Two New Jersey lawmakers believe they can clean up excess foreclosure inventory by creating an entity to acquire foreclosures and sell them as affordable housing units.

The proposed bill creates a unit the New Jersey Housing and Mortgage Finance Agency that would use state affordable housing funds to buy foreclosures and market them to low-income buyers.

The initiative was proposed by Sen. Barbara Buono, D-Middlesex and Sen. Raymond Lesniak, D-Union, who told HousingWire the initiative would also use the state's mortgage finance bonding agency to sell other homes at market rates for middle-income homeowners.

Mark Calabria, an analyst with the Cato Institute, pointed out some of the potential flaws in the plan, but said it's good to see state officials focused on moving foreclosures.

"The big difference is going to be the deed-restriction," Calabria said. "Are you limiting the 'low-income' buyer to only being able to sell to another low-income buyer? That would suppress the value of the house."

"If you're going to just spend the money, which I'd object to, then you'd be better off just giving down-payment assistance and let the market drive the price," he said.

As for the neighbors, Calabria said it's a mixed bag.

"This is probably better than a vacant house next door, but not as good as an arms-length purchase," he said. "So it's choose your poison in some ways."

Calabria said putting the statute in place would be good for banks as the value of their REO would likely increase.

"This is far from the worst way to spend the money," he said. "At least it doesn't try to stop foreclosures and stall the market from clearing, even at distorted prices."

Sens. Lesniak and Buono see the program as a necessity given all of the neighborhood blight caused by foreclosures in New Jersey. Lesniak says calculating the price point is easy since it's based on the average income of families in certain income levels.

He believes more than 10,000 homes could be saved through the initiative. He introduced the bill this week and hopes to get it approved by the state legislature and the governor within 60 days.

"Vacant and boarded up homes are a blight on neighborhoods, an invitation to vandalism and crime and a drag on property values and our economic recovery," Lesniak said.

"Families evicted from these homes still need affordable places to live. Federal Reserve Chairman Ben Bernanke stated the overhang of foreclosed properties is contributing to the slow rate of expansion of our economy, places downward pressure on housing prices and exacerbates the loss in housing wealth.”