N.J. Troubled Mortgages Grow To 14.5%

The Record ( — Thursday, November 19, 2009

The Record

As unemployed homeowners struggled to pay their mortgages, the percentage of New Jersey loans in foreclosure or at least a month behind on payments hit 14.5 percent in the third quarter, the Mortgage Bankers Association said Thursday.

That means that almost one of every seven mortgages in the state was in trouble. The nationwide percentage of delinquent or foreclosed mortgages was a record 14.4 percent, up from 10 percent a year earlier.

The rise in unemployment is the main driver behind the rise in foreclosures, according to Jay Brinkmann, the mortgage bankers' chief economists. Despite the apparent end to the recession, unemployment is running at the highest level in decades — 9.7 percent in New Jersey and 10.2 percent nationwide in October.

"Mortgages are paid with paychecks," Brinkmann said. As the number of unemployed people jumped by about 5.5 million over the past year, two million mortgages fell into serious delinquency, he said.

And he said mortgage delinquency rates and foreclosures "will continue to worsen before they improve," because hiring is not expected to pick up until the first or second quarter of 2010.

While subprime mortgages remain the most distressed sector of the market, the number of new delinquencies is growing faster among prime mortgages, which were taken out by qualified borrowers. Those prime borrowers tend to have more savings to support themselves during unemployment, Brinkmann said. But if they are out of work for a long period, eventually even they find it difficult to hang on to their homes.

The most troubled housing markets in the nation — in Florida, Nevada, California, and Arizona — account for almost half of the distressed mortgages, the MBA said.

New Jersey ranked fifth, right behind those states, in the percentage of loans in some stage of the foreclosure process during the third quarter. With home values down about 20 percent from their peak in the region, many homeowners who lost their jobs and fell behind on mortgage payments couldn't just sell their houses without taking a loss.

"You couple a weak job market with a weak housing market, and you've got a high foreclosure rate," said Michael Fratantoni, an economist with the MBA.

Phyllis Salowe-Kaye, head of New Jersey Citizen Action, said that while the economy is partly to blame for the rise in mortgage delinquencies, lenders also bear some responsibility because of the exotic loans they made during the housing boom. She pointed to one type of loan popular in those days, the option ARM — an adjustable-rate mortgage where the homeowner had the option to pay less than the amount needed to fully amortize the mortgage. In those cases, the unpaid balance was added to the loan amount. But eventually, the payments rise.

"We're seeing people with exploding mortgages that have just started to explode," Salowe-Kaye said.

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