Comments on: New Jersey Bank Foreclosures- Not so bad, Not so Good http://www.bankforeclosuresinformation.com/new-jersey/new-jersey-bank-foreclosures-not-so-bad-not-so-good Information, Articles and News About Bank Foreclosures Sat, 07 Feb 2009 13:46:19 -0800 hourly 1 By: Prof. Samuel D. Bornstein http://www.bankforeclosuresinformation.com/new-jersey/new-jersey-bank-foreclosures-not-so-bad-not-so-good/comment-page-1#comment-276 Prof. Samuel D. Bornstein Wed, 24 Dec 2008 17:19:23 +0000 http://www.bankforeclosuresinformation.com/?p=15#comment-276 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 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

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