Foreclosure Numbers Paint Bleak Picture of Garden State

Joe Tyrrell | March 4, 2013 | Housing, More Issues
Foreclosure filings start to slow in most of the country, still on rise in South Jersey

The numbers tell a grim story for the Garden Sate. The tide of foreclosure is slowly receding across many of the nation’s housing markets, but it is still rising across southern New Jersey.

While other regions may have higher raw numbers, housing distress was becoming pervasive across the state’s southern counties even before superstorm Sandy, according to participants in New Jersey Future’s 2013 redevelopment forum.

And even though big cities like Phoenix and Las Vegas grab foreclosure headlines, South Jersey communities top the list for a number of unfortunate housing market trends, according to Kathe Newman of Rutgers University.

“When you combine mortgages that are delinquent by at least 90 days with properties already in foreclosure, Vineland-Millville-Bridgeton has the highest rate among the nation’s 100 largest metropolitan statistical areas,” said Newman, director of the Ralph W. Voorhees Center for Civic Engagement at the Bloustein School.

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In this case, misery has close company. The Atlantic City-Hammonton MSA is second, and Trenton-Ewing comes in seventh, Newman said

Sadly, these are not the only parts of the state where homeowners are struggling. Essex, Ocean, and Union counties have been leading in the numbers of foreclosure cases, according to Newman.

RealtyTrac, an Irvine, Calif., real-estate data firm, finds that the New York City/Northern New Jersey metropolitan area has a 97-month inventory of foreclosed properties. That is how long it would take them to be resold at the current pace, and is the biggest backlog in the nation.

The Edison-New Brunswick area ranked 25th in the nation last year in completed foreclosures, according to data compiled by CoreLogic, another Irvine firm.

What is striking about South Jersey, though, including Ocean County, is the negative trend, with an increasing percentage of homeowners in trouble, Newman said.

“The volume of foreclosures remains strong in New Jersey’s urban areas, but those are high-density, populous areas,” she said. “The growth in [foreclosure] share is really in South Jersey.”

Newman has been tracking lending and foreclosure trends in the state for a decade, and much of her data can be viewed online.

New Jersey foreclosure filings were highest in 2009, at 66,717. Filings dropped from 58,445 in 2010 to 11, 057 in 2011 — but the latter figures were skewed during court reviews of foreclosure practices and paperwork, when many major lenders stopped filing or prosecuting cases until they received favorable rulings.

Newman’s latest numbers, combined with New Jersey’s high unemployment, underscored what other conference participants called a sobering outlook for the state’s housing market.

In September 2010, the U.S. Department of the Treasury offered the state $302 million in aid to help homeowners fight foreclosure, and approved the state’s application in three weeks.

“That’s the easiest money I ever got,” said Anthony Marchetta, executive director of the New Jersey Housing and Mortgage Finance Agency.

But the state imposed onerous rules on applicants, and was slower than other states to begin releasing the aid. Finally, after a management shakeup, the state program, called HomeKeeper, is averaging more than 250 grants a month, Marchetta said.

The trouble is, “by the end of the year, we’ll be all but tapped out,” with nothing more in the pipeline from the federal or state governments, he said. The only outcome will be “a market solution” that plays out over time, he said.

The dysfunctional national government has no plans to renew the “hardest-hit” aid, which went to states like New Jersey with high unemployment and high foreclosure rates, Marchetta noted.

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Preventing foreclosures has not been a priority for Gov. Chris Christie, who suggested some of the federal funds could be diverted to Sandy relief, and vetoed a bill to allow vacant bank-owned homes to be converted to affordable housing.

“Somebody’s going to take a hit” because of falling housing values, Marchetta said. “Hopefully, it will be some of the banks, because they’re the ones who made the risky loans.”

The emerging market solution is hedge funds buying up troubled mortgages, evicting the occupants, and converting the units into rentals, according to Wayne Meyer, president of New Jersey Community Capital.

His group has recruited private investors to take over mortgages in Newark and Tampa, FL., with the idea of modifying the loans to keep the homeowners. Many of the mortgages are “underwater,” with borrowers owing far more, an average of $335,000 in Newark, than the current value of the housing, Meyer said.

But lenders “would rather foreclose and then sell them at a loss than work with the borrowers to modify the loans,” he said.

Damage from Sandy has delayed many foreclosure act proceedings in Shore areas, but some lenders are using tactics that put more homes in danger, according to Stefanie Wynne of the Affordable Housing Alliance. Since the storm, her group, which works in Monmouth, Ocean and Mercer counties is “averaging 532 foreclosure-related calls a month,” she said.

Homeowners who were having trouble making payments before the storm are seeing lenders delay approvals for repairs or withhold aid checks, Wynne said. And despite widespread publicity by law enforcement, mortgage aid and repair scams are “prevalent,” she said.

The difficulties extend across social classes, Wynne said, “I’m working with people who have $50,000 mortgages up to $1 million mortgages.”

Part of the problem is that those loans do not necessarily reflect current economic realities, according to Newman. Much of the explosive growth in Ocean, Cumberland, and other parts of South Jersey came as the housing bubble was expanding to unsustainable proportions.

Municipalities in Salem and Atlantic counties are seeing some of the largest current declines in housing prices, “but they also had some of the biggest run-ups in the several preceding years, along with Ocean, with all the retired people moving into new communities,” Newman said.

“We ran the housing prices up so and wound up with loans made right at the peak,” she said. Even if the interest rates were sustainable, plummeting values and rising unemployment quickly turned the tables on many borrowers, she said.

The results have sandbagged New Jersey’s housing market and economy compared with other states. The effects of the recovery were lingering here even before the storm hit. Nationally, the Garden State has been running second to Florida in the rate of foreclosed homes compared to total residential mortgages, as tracked by CoreLogic.

With its housing markets devastated by the Great Recession, Florida still suffered a 10 percent foreclosure inventory in January 2013, according to the company. The difference is that Florida’s numbers are dropping sharply, albeit often by completed foreclosures or short sales.

The report shows that New Jersey is one of only four states where the foreclosure percentage rose over the past year, to 7.2 percent.