Bad Credit Mortgage Crisis Hits Home in New Jersey

The New Jersey mortgage market is in trouble.

That’s according to a report released Wednesday revealing that four Central New Jersey counties combined to be among the top 50 metro areas with the highest foreclosure rates in the country.

Middlesex, Somerset, Monmouth and Ocean counties joined the Camden and Newark metro areas on the not-so-desrable list released by the Joint Economic Committee, one of four standing joint committees of Congress.

“What we are facing is a tsunami of foreclosures,” said Sen. Robert Menendez, D-N.J., railing against the mounting subprime (bad credit mortgage) foreclosure problem.

“Just a few short years after home ownership levels soared to record highs, the harsh reality brought on by unreasonable mortgages has come crashing down on millions of homeowners,” Menendez said.

There were 10,075 foreclosures in Central New Jersey last year, according to the JEC report, which ranked the area 48th out of 50 metro areas on the list. This means 1 in 87 homes, out of approximately 877,000, faced or are in the early stages of foreclosure.

The report also said the number of Central New Jersey mortgage foreclosures caused the region’s home values to decline by $3,153 on the average home, which they listed as $350,300.

A local housing counselor said the foreclosure rate in the area soared and that she has heard a growing cry for help.

“I don’t know what happened but this month, the number of calls… have really picked up,” said Claire Lawrence, interim executive director of the Housing Coalition of Central New Jersey, a New Brunswick-based HUD-approved housing counseling agency that serves Middlesex County and Franklin.

“The problems are all over (the county).”

Lawrence said she is “dumbfounded” at the extremely high home loan payments people who come to her agency are expected to pay. Some, she added, are 3-5 months behind on those payments already.

“The problem is most of these people got into mortgages they can’t afford,” she said. “Others were barely just making mortgage payments but because of job loss, illness or something else, they are struggling.”

Subprime (or bad credit home loans), doled out in droves in recent years to borrowers with poor credit, could be a reason for the struggle.

Lawmakers like Assembly Deputy Speaker Neil M. Cohen, D-Union, are calling for a moratorium on mortgage foreclosures, saying the subprime lending market is experiencing a meltdown and causing homeowners to drown.

“Without some form of government intervention, we will see a dramatic increase in the amount of subprime foreclosures in the coming months,” Cohen said in a letter to state Attorney General Stuart Rabner.

“We have a responsibility to protect the people affected by these subprime loans gone bad before the effects of this meltdown triggers absolute chaos in the entire lending industry and undermines our entire economy.”

Joe Petrucelli, an Edison mortgage broker and certified public accountant, said risky mortgage loans, such as negative amortization loans, caused his mortgage business to drop by more than 50 percent a few years ago.

“I wouldn’t sell the interest-only mortgages to people because they ratchet up,” Petrucelli said. “What happens is, someone would get this comfortable feeling that they are only going to pay $1,500 a month but then it adjusts and ratchets up.”

Subprime borrowers typically have weakened credit histories that include payment delinquencies and possibly more severe problems such as charge-offs, judgments and bankruptcies.

“When people are subprime, they get the higher interest rate with the pretense that they’re going to be able to pay this New Jersey mortgage for a period of time and then refinance,” Petrucelli said.

“The problem is they get behind the eight-ball and if you make one late payment, forget about a home mortgage loan refinance. They get late on their mortgage and now they get a 10 percent interest rate that goes to 11 or 12 percent — that’s a 20 percent increase.”

Another factor preventing these borrowers from climbing out of a hole, Petrucelli said, is that property have leveled off across the New Jersey housing market.

“They can’t refinance because they have no home equity in the house because they often leveraged the house at 100 percent,” he said.

Those struggling to make mortgage payments may not have many resources.

“Unfortunately, we don’t offer any financial assistance — it’s strictly counseling,” said Lawrence, who said counselors at her agency sometimes call the mortgage lender on a client’s behalf or offer advice, such as suggesting they ask for a loan modification.

“The other problem is there is not a lot of financial assistance available in this state,” Lawrence said.

SOURCE: The Home News Tribune