The Star-Ledger

Home Loan Crisis Grows

Mortgage Crisis Puts Scores In Foreclosure, Senators Told

The Star-Ledger — Tuesday, September 18, 2007

Star-Ledger Staff

At least 8,000 of the 143,898 New Jersey borrowers who opted for subprime mortgages went into foreclosure in the first half of this year, state Division of Banking officials said yesterday.

Testifying before the Senate Community and Urban Affairs Committee in Trenton, state officials and lenders said another 11,000 of those borrowers are up to three months behind on their mortgage payments.

"I want to be clear that here in New Jersey this is a real threat to homeowners and to the economy," state Banking Director Terry McEwen said of the widening subprime mortgage crisis.

Of the 15,426 first-time foreclosures filed in New Jersey in the first six months of this year, 53 percent involve borrowers with adjustable rate mortgages. Nationally, the figure is 37 percent for the same period.

Black and Hispanic borrowers, who hold 41 percent of subprime loans, have been hardest hit.

In Newark, 12.7 percent of subprime mortgage holders are more than three months delinquent in their payments. In Camden, it's 10.9 percent; Edison 10.5 percent; and Trenton 9.5 percent. By contrast, of all of the 1.24 million mortgage loans of all types in New Jersey, 1.23 percent are in foreclosure.

The Senate Community and Urban Affairs Committee asked banking officials, lenders and government activists to Trenton to discuss potential ways to ease the problem and bail out at least some of the borrowers.

"If anyone in this room believes that the worst is over in the subprime mortgage fiasco you are very, very wrong," said Phyllis Salowe-Kaye, director of New Jersey Citizen Action. "A tsunami of interest rate hikes on thousands of loans is headed our way and we had better be prepared for the disaster and heartache that lies ahead for many communities and homeowners in New Jersey."

Officials said the 8,000 subprime borrowers in foreclosure and the thousands more expected to join them are people with both good and bad credit who took out mortgage loans with adjustable rates that start out with low interest then bump up to a higher rate after a few years. The result is some homeowners took out bigger loans than they could afford, hoping a rising housing market would let them refinance later on. Instead, the housing market statewide and nationally has stalled and home prices are falling.

Lenders, state officials and citizen activists told the committee the borrowers were often low- or moderate-income people who did not do their homework as they prepared to seek mortgages and were misled by unscrupulous lenders.

Jerry Keelen, director of Single Family Programs with the state Housing and Mortgage Finance Agency, said his agency is preparing to offer $30 million to help bail out subprime borrowers, but he told senators he expects it will aid no more than 200 of the 1,600 borrowers who have already contacted the state seeking help.

Sen. Ronald Rice (D-Essex), the committee chairman, told Keelan to go slow in passing out the aid, saying senators are attempting to get a handle on the crisis and determine what legislation may be necessary to help solve it. With lenders mainly controlled by federal statutes, speakers told the committee that guidance and public education on finding and managing a mortgage and avoiding foreclosure may be the best help the state can provide.

"It is worth noting that a big challenge in this area is informing delinquent borrowers that they have workout options and they must talk to their lender early," said Jeffrey Markowitz, a vice president with Freddie Mac, a federalgovernment mortgage provider. "Delinquent borrowers who work with our lenders on a workout plan are 80 percent more likely to avoid foreclosure than those who do not work with a lender."

Markowitz said a 2005 Freddie Mac survey found 61 percent of delinquent borrowers did not know there are workout options, "and significant percentages of those borrowers did not return lender phone calls out of embarrassment or a lack of faith that anything can be done to help them."

The Federal Housing Administration will provide information on home ownership, mortgages and dealing with lenders on Sept. 29, from 9:30 a.m. to 2 p.m., at Essex County College, 303 University Ave., Newark. People can register by calling 1-800-CALLFHA.

A "Homeowners Guide to Subprime" is available in English and Spanish at the state Department of Insurance and Banking Web site:

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