Jersey City Independent

Unemployment, Speculators Exacerbating Jersey City's Foreclosure Problem

The Jersey City Independent — Friday, March 5, 2010

By Colin Asher

It began with predatory loans, now it's unemployment, but change of fuel source not withstanding, the foreclosure crisis sweeping through Jersey City showed no signs of checking its progress in 2009.

"It's not letting up at all," says John Restrepo, director of Jersey City Episcopal Community Development Corporation's (JCECDC) real estate division.

There were 1,970 foreclosure filings in Jersey City in 2009, slightly more than the 1,937 filings made in 2008. The pace of Jersey City's foreclosure filings was in line with the statewide trend. In New Jersey, there were a total of 63,208 filings last year, representing 1.8 percent of all housing units. That number is 1 percent higher than the number of foreclosure filings in 2008 — about the same increase that Jersey City saw — and it is 103 percent higher than the number of filings in 2007, according to online data firm RealtyTrac.

The foreclosure rate actually fell in Jersey City and statewide between December and January, by 43 percent and 39 percent respectively, but despite that fact there is little indication it will begin a sustained decline anytime soon. According to the Center for Responsible Lending, almost 200,000 New Jersey mortgages were past due in the third quarter of 2009. By 2012, they project, there will be another 235,881 foreclosures in the state.

Until recently, homes were going into foreclosure after payments on adjustable rate mortgages increased beyond the ability of borrowers to pay. But that is beginning to change. The recession has kept apace of the foreclosure crisis, and job losses have begun to play a larger role in pushing homes into foreclosure.

"We're seeing people with bad mortgages and no income, but we're also seeing people who had two jobs and they lost them and now they're five months behind on their mortgage payments," Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, says of the people approaching her organization for help.

After holding steady at 9.7 percent for October and November, New Jersey's unemployment rate jumped to 10.1 percent in December — a 33 year high, and the first time since October 2006 that the state's rate topped the national rate.

Jersey City's unemployment rate has been even higher, outpacing both the state and national rates. In December, the city's unemployment rate was 11.5 percent, marking the eighth straight month it was above 10 percent, a streak not seen here since March 1997, the final month of an 81-month run of 10-plus percent that began in January 1991.

All those job loses are forcing formerly solvent borrowers into the red. Tellingly, the rate of foreclosure filings tracked the end of year trend in the unemployment rate. There were more than 200 foreclosure filing in Jersey City in each of the last three months of 2009, some of the highest rates of the year.

"It's bad loans, but it's more apparent now that foreclosures are being caused by unemployment," Restrepo says.

During the housing boom, adjustable rate mortgages were approved for homes concentrated in Jersey City's lowest income neighborhoods, and as the foreclosure crisis began, those neighborhoods were most affected. The result was a pronounced concentration of foreclosure filings. In 2008, there were almost 800 foreclosure filings in the 07305 ZIP code, which includes the Greenville neighborhood. That rate was nearly double that of the next hardest hit area.

Now that the economy and bad loans are both playing an active role in driving people into foreclosure, the same pattern is repeating. The combination of predatory lending and limited job prospects means that Greenville has been doubly impacted by the recession — and the foreclosure crisis.

"It's a huge issue," Restrepo says. "My biggest concern is that all the progress the neighborhood has experienced in the last ten years is being rolled back."

In 2009 there were 769 foreclosure filings in the 07305 ZIP code. Like 2008, that rate is almost double the number in other areas. In 07304, which includes the Bergen-Lafayette, McGinley Square and West Side neighborhoods, there were 423 filings; and in 07307, which covers most of the Heights, there were 357 — less than half the rate Greenville experienced. In contrast, other areas saw very few filings. There were only 134 foreclosures in the 07302 ZIP code, which is mostly comprised of the Downtown area, for example. That concentration of filings exactly aligns with the pattern seen in 2008.

map of foreclosure filings, as noted in text

As the foreclosure crisis drags on, the damage done to the city's poorest neighborhoods by consecutive years of high foreclosure rates is being compounded by real estate investors. Sensing that declining fortunes create good investment opportunities, speculators have begun purchasing foreclosed homes, hoping their value will increase when the recession ends. Sometimes they even buy homes sight unseen, betting that an economic turnaround will raise the value of any property in Jersey City.

Investors are "not even trying to put families into them," Restrepo says. "They'll sit on them until the market stabilizes."

Purchasing properties with the intention of keeping them unoccupied delays recovery, because empty and unproductive properties suppress the value of adjacent properties. And a heavy concentration of empty properties increases the cost of policing and fire services, because they are an enticing target for scavengers searching for wiring, pipes or fixtures, and for vandals and squatters. Even if property tax is paid on an empty property, it still burdens the city and the neighborhood it is in.

"What it does is breed abandonment," says Arnold Cohen, policy coordinator of the Housing and Community Development Network of New Jersey. For homeowners that are able to pay their taxes and mortgages, living in a neighborhood with a large number of empty properties is a burden. "It makes it an unpleasant place for people who are paying their mortgages to want to stay."

Property speculation has also hamstrung city efforts to stabilize neighborhoods impacted by the foreclosure crisis. JCECDC received a neighborhood stabilization grant from Jersey City to purchase foreclosed properties and sell them to working class families. The program began at the beginning of the year, but JCECDC has not purchased a single home to date. Every building they have considered buying has been snatched up by investors who either outbid them, or purchased the properties before JCECDC was able to complete their due diligence process.

"We've seen investors making money on peoples' hardship all over," Salowe-Kaye of New Jersey Citizen Action says of the practice.

To counteract the negative effect property speculation has had, Restrepo, who is also president of the Jersey City Affordable Housing Coalition, plans to push Jersey City to adopt the state's abandoned property ordinance.

If adopted, the ordinance would allow the city to make a list of unproductive properties and demand their owners find occupants. If owners refuse, or fail to respond, the city would be able to seize the properties, compensate the owners, and place them back on the market. The ordinance would be a powerful tool for the city's housing advocates, and might dampen the enthusiasm of speculators.

The Housing and Community Development Network of New Jersey advocated for, and was able to pass, the abandoned property ordinance at the state level before the housing boom. It has since been adopted by nearly two dozen municipalities, but not by Jersey City.

Legislative intervention is necessary, Cohen says, because investors are doing what the market dictates, and nothing shy of government intervention is likely to stop them. It is now possible to buy property for a fraction of what it was worth only a year or two ago. There's no reason an investor wouldn't buy foreclosed homes in that environment, even if the practice suppresses property values in the short term and makes it more difficult for a neighborhood to recover. Without a countervailing pressure like legislation there is no reason to presume they will stop anytime soon.

"That becomes a real problem for our member organizations who are looking out for what is best for the neighborhood as a whole," Cohen says. Without legislative intervention, neighborhoods that went through the trauma of boom and bust could be stuck at the bottom of the cycle for years.

"It's going to be at least a decade before market forces bring these neighborhoods back," Cohen says.

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