Posts 
New Jersey Bank Foreclosures continue to increase. Data released by New Jersey State’s Office of Foreclosure showed that there were 47,668 filings for foreclosures in the year ending on 30th June, 2008. This, in comparison to last year’s figure of 26,132 filings is a steep rise.
James Hughes, an economist with the Rutgers Uni. predicted that the foreclosure problem and declining property prices could well continue until 2010.
Home owners who are involved in the foreclosure process across the country have doubled in the 2nd quarter of this year as in comparison to the same time period last year, with New Jersey Bank Foreclosures rising up rather dramatically, data from a recently released report show.
With the senate passing the housing relief bill, approximately 400,000 home owners might see help in avoiding foreclosure on their properties. Freddie Mac and Fannie Mae, the two government supported mortgage institutions are also to receive aid due to the bill.
A call to the lenders has been made by Rep. Barney Frank (Massachusetts) and Rep. Maxine Marks (California) to either stall or cancel existent foreclosures and give the bill time to take effect, waiting to see which borrowers could qualify under the program Rep. Barney Frank is also the Chairperson of the House Financial Services Committee. Bonita Holmes, who works as a counselor for Citizen Action said that they’ve had 290 cases relating to foreclosures in the first six months of the year, the total number of cases they handled throughout the whole of last year was 182. New Jersey Citizen Action which works with home owners trying to avoid foreclosure hope that the bill provides them with added tools to work on improving the current New Jersey Bank Foreclosures scenario.
The director of the accounting organization J.H.Cohn, Patrick O’Keefe said that despite there being a rise in New Jersey Bank Foreclosures, the state does not feature among the list of top states suffering under the mortgage crisis. He went on to say that the housing market wasn’t particularly suffering due to foreclosures in the state.
Under normal circumstances, small business owners are generally optimistic about our future. Today, the situation is different. As an analogy, we take an annual physical exam, even though we feel fine. However, the Blood Test usually identifies whether we are ill or healthy. Recently, the National Association for the Self-Employed (NASE) ran a survey which I created to diagnose the small business involvement in ALT-A and Option ARMs mortgages. The results were astounding.
You will note that these are the most “TOXIC” mortgages that will be RESETING in 2009 through 2012. The main problem is that 80-90% elected to make the “minimum” payments on these mortgages, thereby allowing the principle to grow and bring them into negative amortization whereby the principle was more than the original mortgage. The problem with RESET or RECAST is that now, these borowers must pay off the principle in the remaining term of the mortgage. No matter what the interest rate is modified to, the monthly payment will SKYROCKET to unsustainable amounts.
It is a tragedy when an individual borrower defaults on the mortgage and loses his/her home. The tragedy is magnified when the borrower is a small business owner, employing from 1 to 10 employees. The loss of jobs related to mortgage defaults and the resulting business failures will further weaken our economy and prolong the recession.
Job retention is as important as job creation. The small business owners are at great risk for their survival, as they must contend with personal and business debt, the recession, and the continuing forces of small business failure which have been exacerbated by the credit crunch and financial crisis. The economic downturn will dramatically increase the rate of small business failure and job losses.
I am a Professor of Accounting and Taxation at Kean University School of Business in Union, NJ.
On 4/16/08, I testified before Senator John F. Kerry’s US Senate Committee on Small Business and Entrepreneurship. I have researched the Foreclosure Crisis, and believe that you may find the following interesting as it relates to the PAY OPTION ARMs piece.
I authored a survey of small business owners which was run by the Association for the Self-Employed (NASE) which determined the involvement of the small business community in these TOXIC Mortgages that are about to RESET in the 2nd Wave of Foreclosures due in 2009.. NASE issued a Press Release on 11/21/08. The survey appears on their website at http://www.nase.org
Many fail to realize that there are millions of self-employed micro-businesses, who employ from 1-10 employees, that are holding these mortgages that are going to reset in 2009 through 2012. These borrowers are Prime and Near-Prime borrowers who hold ALT-A, Option ARMs, Interest-Only mortgages. There are $1 Trillion ALT-As, and $500-600 Billion Option ARMs.
So, here we have a major problem… These millions of small business owners will lose their homes, their business may fail, and their employees will go job-less. Obviously, the recession will exacerbate these problems. Although President-Elect Obama is stressing the need to create 3 million new jobs, we must understand that “JOB RETENTION IS AS IMPORTANT AS JOB CREATION”.
According to this survey, it is estimated that 3,709,800 small business owners hold Alt-A and other toxic mortgages, and 1,279,800 are already delinquent as they have missed one to three or more monthly mortgage payments at mid-November, before the expected Resets that are scheduled to begin in 4th Quarter 2008 through 2012.
Conclusion
Small business is the job creation engine of our economy. Proactive efforts must be taken to provide small business owners with immediate and specific financial guidance, combined with other measures, to avoid default on mortgages and other debts in this critical and challenging financial crisis.
Thank you,
Samuel D. Bornstein
Professor of Accounting & Taxation
Kean University, School of Business, Union, NJ bornsteinsong@aol.com
732-493-4799