Central Jersey Homes Face Rising Tide Of Mortgage Defaults

More homes underwater, in foreclosure danger — Tuesday, March 13, 2012

Written by Pamela MacKenzie
Staff Writer

Underwater mortgages

CENTRAL JERSEY — CoreLogic, a company that tracks statistics about foreclosures and homes in danger of foreclosure, reported on March 1 that nearly 79,000, or 14.2 percent, of all homes in Somerset, Middlesex, Monmouth and Ocean counties are underwater on their mortgages. Underwater is defined as owing more money on a mortgage than the home currently is worth.

Jeffrey Otteau, president of Otteau Evaluation Group in East Brunswick, confirmed that figure is similar to what he's seeing. He said home prices have receded to 2003 levels, so people who bought their home after 2003 probably now are facing negative equity in their homes. This is especially true for people who bought homes with little or no down payment.

"And what's also worrisome is that (an additional) 4.3 percent will be underwater if market prices fall another 5 percent," Otteau said.

Underwater mortgages have a bearing on the real estate market when the homeowners cannot or will not continue to make payments. Some homeowners who owe more than their home is worth decide to stop making payments, even though they can afford to. Others no longer can make payments due to unemployment or underemployment. Either way, their home eventually ends up on the market, either as a short sale or a foreclosed property.

Short sales happen when the homeowner finds a buyer who will purchase the home for less than the balance due on the mortgage, and the bank agrees to take the buyer's price to satisfy the seller's mortgage. These sales often take months, require voluminous paperwork and often fall through.

Joseph Boniakowski, broker of record for ERA E.A. Boniakowski Agency in Green Brook, said short sales have become stigmatized because most buyers have an immediate need for housing, and short sales take too long, if they close at all.

"About one in 10 short sales actually close in my experience," he said.

CoreLogic also reported that the number of homeowners who are 90 days or more delinquent on their mortgage payments has increased 1.07 percent in the same four-county area from December 2010 to December 2011.

People who no longer are paying their mortgage in New Jersey have often been able to remain in their house for a year or more because foreclosures take years to get to a sheriff's sale. Phyllis Sallowe-Kaye, executive director of New Jersey Citizen Action, an organization certified by HUD to counsel homeowners in danger of losing their homes, said it takes about 936 days to foreclose in New Jersey. However, this may be about to change.

Increases in foreclosures

John McWeeny, president of the New Jersey Banker's Association, said that a New Jersey Supreme Court decision on Feb. 27 has defined how banks can now go forward on foreclosures where the original paperwork was faulty. With the ruling, McWeeny said, banks can now process many of the thousands of foreclosures that have been held up in the courts for the last couple of years. As a result, he expects a high number of foreclosed homes to become available for sale in the next six months.

Add to this, the number of homes in the foreclosure process is growing. CoreLogic reported Tuesday that the rate of foreclosures among outstanding mortgage loans in the four-county area is 5.25 percent for the month of December 2011 — that's 0.59 points higher than December of 2010, when the rate was 4.66 percent. The national foreclosure rate was only 3.37 percent for December 2011.

McWeeny said that some banks were holding off initiating new foreclosures until the robo-signing lawsuit was settled, which also happened in February. "Robo-signing" refers to expedited some banks' processing of foreclosures without following proper procedures.

McWeeny said he is looking forward to an electronic processing procedure that will speed up foreclosures, especially the uncontested foreclosures of abandoned properties. Finding new owners quickly for these properties would help everyone, he said.

He also said that some programs have been improved to help homeowners who want to remain in their homes in spite of delinquent payments. There used to be a cap on the loan-to-value ratio on the federal Home Affordable Refinance Program, but that has been lifted, he said. Sallowe-Kaye said there is also a New Jersey Home Keeper program to help those who are unemployed or underemployed. New Jersey Citizen Action can help interested homeowners find out more about these programs, and they have offices in Plainfield, Rahway and Highland Park.

Increase in the number of sales

In spite of the flood of new foreclosures expected to hit the real-estate market this year, bankers, agents and homeowners alike are taking heart from the fact sales of homes in Central Jersey have picked up significantly in recent months. Otteau reported a 31 percent increase in home sales in New Jersey in January alone.

"I'm with Otteau on that (increase)," Boniakowski said. "Since the day after Christmas, my office has seen a significant increase in calls about homes for sale. Our open houses are well attended, and we also see a great response to our Internet advertising."

Boniakowski noted the people who are buying homes today are doing so because of an immediate need. Perhaps they are getting married or they are having another child. And they are attracted to the low mortgage interest rates available right now.

"Let's face it. A multigenerational situation isn't always ideal, so when someone or a couple can move out on their own, they'll usually do it," he said.

No figures are available to show if the number of home buyers will keep up with the increase in the inventory of homes available. But if interest rates stay low and homebuyers continue to take advantage of them, New Jersey should continue to see an active real estate market this year.

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