New Jersey Subprime Woes Worse than the Nation's

This is a little old, but important for New Jerseyans. And if you haven't seen the Paul Krugman column from yesterday here it is. It is scary.

New Jersey Subprime Woes Worse than the Nation's
Saturday, December 1, 2007

The Federal Reserve Bank of New York issued a report Friday that sheds light on the condition of subprime mortgages in New Jersey, and it's not a pretty picture.

Nine percent of more than 63,000 securitized adjustable rate subprime loans in the state were in foreclosure in August, according to the first-of-its kind report to track the condition of loans given to non-prime borrowers in New York and New Jersey.

Being in foreclosure means that lenders had initiated steps to repossess the property. Nine percent of 63,000 loans represents about 5,670 homes in foreclosure.

The Fed estimates that securitized subprime loans include about 75 percent of all subprime loans. Securitized means bundled together and resold to investors as mortgage-backed securities.

Payments on only 67 percent of the loans -- which totaled $16.5 billion in outstanding balances -- were up-to-date.

"More than 30 percent in arrears is a striking number," said Keith Gumbinger, vice president of HSH Associates in Pompton Plains, a publisher of financial information. Adjustable rate subprime loans are the kind most often singled out as a cause for rising foreclosure and default rates.

According to the report, the typical subprime adjustable rate borrower in New Jersey borrowed $262,000 and started out paying an interest rate of 8.12 percent. But after the rate adjusts over time they would pay about 11.42 percent on average over the life of the loan, the report said.
The monthly payment at 8.12 percent on a $262,000 loan amortized over 30 years is $1,944. At 11.42 percent the payment is $2,568.

The foreclosure rate on subprime adjustable rate loans nationwide was 7 percent, compared with New Jersey's 9 percent.

Those that were 60 or more days late nationwide accounted for 12 percent, the same as New Jersey.

For loans on homes in Newark, 14 percent were in foreclosure and 13 percent were 60 or more days past due.

In New York City, 14 percent were in foreclosure and 10 percent were 60 or more days past due.

Adjustable rate subprime loans are among the types of loans most likely to go bad because borrowers often have had trouble with debt in the past and because their monthly payments will rise over time. And in a real estate market where home prices are falling, it is often impossible for financially distressed borrowers to refinance or to sell at a price that would pay off the balance of the mortgage.

The Fed said the report, which will be updated monthly, is to help community groups and policymakers "better understand, monitor and address conditions related to non-prime mortgages." Second mortgages and home equity lines of credit were not included in the data.
"This first set is a baseline," said Andrew Williams, a spokesman for the New York Fed. "Once we have more data we will be able to make comparisons."E-mail: newman@northjersey.com