Tuesday, October 14, 2008

NJ Mortgage Trust Issues

The new foreclosure tax on subprime investment purchases is generating a lot of controversy. But that is true with almost every proposal that is generated right before an election. Rhetoric gets heated. Oppositions increase. The economic crisis itself is huge - adding it to an already historic election season fuels the fires on both sides.

But there is another aspect to this. One of the cold, hard numbers involved. While generating fury make feel good, it does not address the issues or numbers involved. On a individual scale it is one thing to agree with the tax or not - but looking at the numbers of people involved and the impact to our state if the numbers fall into foreclosure is very troubling. One part of this article from the South Jersey Courier Post titled Mortgage Lenders Slam Trust Fund Plan is the numbers that the state leaders are dealing with.

Before taking a look at the article - the headline focuses on mortgage lenders but not one is quoted in the article. The closest we come from hearing from an actual lender is the executive director of the Mortgage Bankers Association of New Jersey, Robert Levy. Levy states "The process being suggested is too costly and too onerous, and it could stop businesses from lending in New Jersey." And thats it! Funny that an article that is titled mortgage lenders slamming a plan that none are quoted in slamming the plan. Another point before going into the article is that the fees are not coming off the profits - they will just be added to the front end of new mortgages and coupled with other fees.

Now onto the meat of the article -

There were more than 134,000 subprime mortgages in New Jersey as of June 30, and 32.5 percent of them were in foreclosure or close to it, according to the Mortgage Bankers Association National Delinquency Survey.

The state's housing and mortgage agency estimates another 10,000 to 20,000 subprime loans will fall into these categories over the next two years if the situation continues unabated. It projects the trust fund would receive between $20 million and $40 million by 2010.

Just given the numbers we are looking at 43,550 sub prime properties in or close to the foreclosure process. With projections adding another 10,000 to 20,000 in the next two years.

In the Realty Trac foreclosure numbers for August the total number of properties in some part of the process was 6,475 and that gave NJ the national ranking of 11 and one out of 536 properties in foreclosure. If just the smaller number of 43,550 subprime properties enter the foreclosure cycle NJ would be the number one foreclosure state with one foreclosure for every 69 households. That is 1 in 69! Adding the higher number of 63,550 potential subprime foreclosures in the state and the number rises to 1 in 52 properties in foreclosure. Yes, 1 in 52! These numbers easily surpass Nevada (1 in 91) and California (1 in 130). These are devastating, Great Depression numbers we are looking at! And these numbers are just contained to the subprime borrowers - that does not include all of the rest of the foreclosures!

Foreclosure numbers of this rate would be devastating to the state and are an ominous sign of things that are headed this way. Just looking at our previous posts here and here for the impacts of foreclosures in California shows how big the impact of foreclosures at this level would be. This sounds like the credit crunch issue - doing anything is bad but doing nothing is even worse. Another round of problems we wish we were not in but not doing anything will just compound the problems.

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