Predict housing crisis will get worse, hit poorest the hardest

Monday, September 08, 2008
By PAUL KOEPP
JOURNAL STAFF WRITER

The subprime mortgage crisis has not hit Hudson County as hard as other parts of the state, but analysts say there could be more pain - and more foreclosures - in the near future.

According to a report released last month by the Federal Reserve Bank of New York, New Jersey had the fifth highest ratio in the country of subprime mortgages in some stage of foreclosure as of June, three out of every 1,000 housing units.

Hudson's ratio is slightly lower than the state's, but the county ranks fifth in absolute number of subprime mortgages in foreclosure with 695, or 6.7 percent of the statewide total, the report said. Essex and Union counties account for a combined 25 percent of the subprime-related foreclosures.

Subprime mortgages, typically given to borrowers with poor credit histories, carry adjustable rates that can lead to rapidly escalating payments.

The Fed's study found that most foreclosures are clustered in low-income neighborhoods. That's no surprise to Emad Nairooz, a broker with Top Quality Realty, a Jersey City real estate company that specializes in foreclosed properties.

"In my opinion, in Hudson County the area that is getting hit bad is Jersey City in the Greenville area," Nairooz said. "And it's growing like crazy."

Nairooz said that one typical Greenville property, a three-family home that was purchased for $400,000 at the end of 2006, now can't find a buyer at an asking price that is less than $140,000.

RealtyTrac, a company that tracks foreclosures across the country, reported last week that there were 4,622 filings in New Jersey in July, 11.2 percent more than a year ago. There was an 8 percent increase nationwide.

The RealtyTrac report, which is not limited to subprime filings, listed 2,769 properties currently touched by foreclosure in Hudson County, or one in every 91 housing units. About 2,000 of those are in "pre-foreclosure," the initial stage in which borrowers can still keep their homes by catching up on their payments.

Roughly half of the properties are in Jersey City; North Bergen has the next largest number, with 283.

Meanwhile, foreclosure sales conducted by the Sheriff's Office jumped from fewer than 200 from January to July in 2007 to 519 over the same period this year, according to spokesman Bob Knapp.

Still, Jeff Kaplowitz, an agent with Century 21 Plaza Realty in Jersey City and former chairman of the Jersey City Planning Board, says the worst may not have arrived.

"We're not being affected that greatly," he said, adding that the local housing market could dive early next year because of layoffs in the financial industry.

"As New York City goes, we will go," Kaplowitz said. "All those brokers who get 40 to 100 percent bonuses in December and January won't have that disposable income, and that will ripple through the New York economy."

Councilwoman Viola Richardson, who represents the Bergen/Lafayette section of Jersey City, said that predatory lending and the downturn in the housing market have left her ward dotted with "For Sale" signs.

"A lot of people are talking about losing their homes," Richardson said. "I think the banking industry has really done a disservice to poor people."

==========================

Feds aim to rescue at-risk homeowners

Jersey Journal
Monday, September 08, 2008

On July 30, President Bush signed the Foreclosure Prevention Act of 2008, the long-awaited housing bill.

The bill authorized the Federal Housing Administration to insure up to $300 billion in refinanced loans for homeowners at risk of foreclosure, which could affect as many as 400,000 homeowners nationwide. This is significant for New Jerseyans as the state ranks 13th nationally in foreclosures. The new loan will be made by an FHA-approved lender with the FHA guaranty or insurance that the borrower will perform, thus lowering the borrower's rate.

Officially known as FHA Secure, the program is primarily aimed at those borrowers with adjustable rate mortgages, who have a high probability of going into default once their interest rate resets to a much higher rate.

For example, if a borrower was not delinquent more than twice on their ARM over the past 12 months, they could qualify for a much lower fixed rate and remain eligible for the standard 97 percent loan to home value ratio that FHA normally grants, which is quite generous: On a value of $300,000, a $291,000 mortgage could be obtained.

On loans that are already in default - the homeowners facing foreclosure - an FHA-insured mortgage can still be obtained provided that the current lender reduces the principal balance to 85 percent of the home's value.

This is a reasonable solution allowing homeowners to stay in their homes while the lender avoids a complete loan write-off.

To qualify, the borrower would have had to face an interest reset under an ARM during the period June 2005 to December 2008.

In fairness to the taxpayer, the program is structured to be fully funded by premiums charged to the borrower, creating a pool to pay for losses sustained. The premiums are higher than FHA would normally charge to first-time home buyers under its traditional programs. Nevertheless, all those eligible must have a steady history of documented employment and sufficient income to meet the obligations.

To learn more about FHA Secure and the other programs of FHA, part of the Department of Housing and Urban Development, go to hud.gov.

For a HUD-approved Housing Counseling Agency, call 1-800-569-4287.

New Jersey's Department of Banking and Insurance does not have Web site links to the federal agencies but continues with NJ HOPE (Home Ownership Preservation Effort), which provides resources across the state for those in need of assistance. Go to state.nj.us and click on "Foreclosures/Sub-Prime."

ALKY DANIKAS is a lecturer of economics and finance at St. Peter's College in Jersey City. His Money 101 column appears every other Monday on the Dollars & Sense page.