The Times, Trenton

Foreclosure Woes Touch All Mercer Towns

The Times of Trenton — Sunday, September 2, 2007

BY ANDREW KITCHENMAN

Mercer County has been swept up in the mortgage meltdown affecting the nation, as foreclosures increase and residents face the results of taking out subprime mortgages with higher interest payments.

Foreclosure filings have risen from 728 through Aug. 20, 2006 to 928 for the same period this year, a 27.5-percent increase, according to the Mercer County Clerk's office.

Some of those who can't make their mortgage payments should never have received approval for the loans, according to Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, which provides mortgage counseling.

"They target low- and moderate-income minorities in urban areas," Salowe-Kaye said of subprime lenders. She recalled one New Jersey resident with a $40,000 income who took out a $400,000 mortgage by claiming that renters would cover much of the mortgage cost.

New Jersey Citizen Action has provided counseling to hundreds of residents at its loan counseling center in Trenton.

The problem isn't limited to cities like Trenton. While County Clerk Paula Sollami-Covello said the number of foreclosures in Trenton traditionally has led the count, the past year has seen foreclosures increase in suburban municipalities such as Hamilton.

While mortgages that are listed under foreclosure in public notices often are resolved before an actual sheriff's sale, the increase in foreclosure notices in some Mercer municipalities has been stark.

Trenton had 166 foreclosure notices in the first seven months of this year, an increase of 29 over last year; Hamilton increased from 40 to 50; and Lawrence increased from 13 to 23, according to Jeff Posner, owner of SheriffSalesOnline.com, a Web site that tracks both initial filings and notices.

The root cause of many recent foreclosures is the wave of subprime mortgages, according to mortgage experts. Subprime mort gages are given to people with low credit scores due to missing payments or having limited credit histories. Subprime mortgages have higher interest rates and fees than conventional mortgages.

In recent years, mortgage brokers offered more and more subprime loans. This trend peaked in 2005 – when 21 percent of Mercer County mortgages were subprime – and continued through 2006.

The foreclosure increase "is a direct result, essentially, of borrowers buying homes that they could not afford," according to real estate appraiser Jeffrey Otteau.

The percentage of Mercer County mortgages that were subprime in 2005 ranged from as much as 42.3 percent in Trenton to as little as 3.3 percent in Pennington. Countywide, 21 percent of the 8,085 mortgages were subprime in 2005, the most recent year for which statistics are available.

The percentage of subprime mortgages in 2005 for other Mercer County towns were East Windsor, 15.6 percent; Ewing, 24.2 percent; Hamilton, 18.1 percent; Hightstown, 25 percent; Hopewell (township and borough), 6.2 percent; Lawrence, 12.2 percent; Princeton (township and borough), 3.5 percent; Washington Township, 5.5 percent; and West Windsor, 4.7 percent.

These mortgages frequently included low initial payments followed by adjustable-rate increases after two or three years. Beginning last year, some borrowers had difficulty paying mortgages when the rates and monthly payments increased.

Delinquent payments by overburdened borrowers have made loans that are packaged as securities less attractive to investors, which in return makes it harder for mortgage brokers to break even.

"The most significant thing that has changed is that you now have a pretty serious liquidity crisis in the industry," according to E. Robert Levy, executive director of the Mortgage Bankers Association of New Jersey. He estimated the effect of the subprime mortgage problems will last for another year or two.

Levy encouraged those who are unable to make their monthly payments to contact their lender's loss mitigation department and seek a solution that would delay or reduce payments.

Liquidity problems have affected a range of home loans, from subprime mortgages to those in wealthier areas of the county such as West Windsor and the Princetons, including mort gages that exceed the conventional limits covered by government-sponsored corporations.

"There's been a problem with what we call jumbo loans," which exceed $417,000, Levy said.

Those looking to take out mortgages for more than that amount now must pay higher interest rates. This especially stings those in the market for houses that cost $500,000 or more, according to Pete LaBriola, general manager of the Princeton office of real estate firm Keller Williams.

Instead of taking out a jumbo loan, buyers in that price range may take a small second loan on top of their first mortgage, he said.

LaBriola said sellers must lower their expectations, particularly if their home's location has any drawbacks, but he still sees the market reaching equilibrium soon.

The crunch in mortgage money also has affected conventional mortgage companies that never specialized in subprime loans, forcing changes in the types of mortgages they offer. For instance, Gateway Funding now requires higher down payments or credit scores for customers interested in loans in which they state their assets or income rather than document them, Mercer County branch manager Frank Mancino said.

Mancino said anyone watching the news recently should be aware that it may be difficult to buy a house.

He noted that on Aug. 22 and 23, Delta Financial laid off 300 employees; Lehman Brothers closed its BNC Mortgage unit and laid off 1,200; Impac Mortgage laid off 350 employees; and HSBC eliminated 600 jobs and closed a U.S. mortgage office.

"If you didn't already own a house and had seen the ups and downs" of the housing market, Mancino said, then it would be difficult to take out a mortgage. "It's a tough call."

Homeowners unable to pay their mortgages aren't the only ones affected. With more houses on the market and fewer interested or able to buy them, New Jersey homes have typically lost 8 to 10 percent of their value, according to Otteau, president of Otteau Valuation Group of East Brunswick.

Otteau cautioned that the initial foreclosure filings usually do not lead to actual sheriff sales. For instance, the Web site Realty Trac listed 4,157 foreclosure filings statewide in July, but the actual number of foreclosures was only 215. Even at that level, there were more foreclosures in recent months than in any period since the 1990-91 recession.

"What is so alarming about that is that we're close to recession-high foreclosures and we're not in a recession," Otteau said.

Otteau predicts anywhere from 175 to 300 actual foreclosures in Mercer County between late 2006 and early 2009.

However, if a recession was to start, Otteau estimates that the number of homeowners who would be delinquent in mortgage payments or face foreclosures would double.

"That would be more than the housing market could bear," prompting significant declines in home values, Otteau said.

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