Sandy-Swamped New Jersey Leading Foreclosures: Mortgages

Foreclosure filings surged in New Jersey, New York and Connecticut last month, even before those three states bore the brunt of superstorm Sandy that now has homeowners digging through the debris.

Default, auction and repossession notices increased 140 percent in New Jersey, 123 percent in New York and 41 percent in Connecticut from a year earlier, the biggest annual gains among U.S. states in October, RealtyTrac Inc. said today in a report. Foreclosed properties in counties affected by the storm were valued at $41 billion, the company said.

Sandy killed at least 177 people in the eastern U.S. and Caribbean, ravaging beachfront communities, and left more than 8 million homes and businesses in the cold without power for days. Subways and tunnels in Manhattan were flooded and stock exchanges shut down. Insured damages may swell to as much as $20 billion, according to Eqecat Inc., a provider of catastrophic-risk models.

“There will be a huge increase in delinquency because of job loss,” Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, a homeowner counseling agency based in Newark, said in a phone interview. “There are whole towns where businesses have been wiped out, and people worked in those businesses.”

Lou Forst and Suzanne Gambert, a Newark police sergeant and small-business owner who are both longtime residents of the New Jersey city, own a house in Forked River that was heavily damaged by the storm. Two feet of mud covered the inside of the three-bedroom ranch-style home, built on a concrete slab close to Barnegat Harbor, Forst said.

‘Mud and Silt’

“It was completely flooded and we lost all our furniture and appliances, the kitchen and bathrooms we had just redone,” Forst, an instructor in Newark’s police academy, said in a telephone interview. “Black mud and silt were everywhere. It smelled like sewage and a fish market.”

The couple had purchased the home in April 2011, realizing a decade-old dream. They paid $437,000 in a short sale, in which the bank sells for less than the amount owed on the mortgage, and spent at least $50,000 on renovations and furnishings, coming down from Newark on weekends to do the work themselves, Forst said.

Residences accounted for about 55 percent of the insured real estate damaged by Sandy, according to Eqecat, which estimated total economic losses of as much as $50 billion. About 34 percent of the property losses occurred in New York, 30 percent in New Jersey, 20 percent in Pennsylvania and the remainder in other states, Eqecat said Nov. 1.

Third-Worst

New Jersey home prices were the third-worst performing among U.S. states in September, down 1.8 percent from the previous month, according to Irvine, California-based CoreLogic Inc.’s index of residential values. That compares with a drop of 0.3 percent nationwide. The share in New Jersey of seriously delinquent mortgages -- more than 90 days behind or in the foreclosure process -- was 12.85 percent in the third quarter, the second highest behind Florida, according to the Mortgage Bankers Association’s delinquency survey released today.

Delinquency rates will spike in the wake of Sandy, a “big negative” as the state struggles with defaults and record unemployment, Deutsche Bank AG (DBK) said Nov. 7.

While Sandy’s impact on home prices in the region probably will be modest, it probably will delay the housing recovery in New York and New Jersey, the Deutsche Bank report said. The effect on delinquency rates may be temporary, with homeowners unable to do “simple stuff such as access the Internet to pay monthly bills,” said Steven Abrahams, a New York-based mortgage analyst for Deutsche Bank.

Delinquency Spike

“You will see delinquencies spike after any major widespread weather event and this is as widespread as they get,” Abrahams said in a telephone interview. “The question is whether this represents a long-lasting credit impairment, or a temporary interruption of normal payment patterns. My guess is that the bulk will be temporary interruptions.”

Lenders may be slow to add foreclosed properties to the market in New Jersey while they “wait to see how things settle,” said Joseph Seneca, professor of economics at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University in New Brunswick.

An initial blow to the local economy and housing market because of lost income and property damage is likely to be followed by the rebuilding of houses, businesses and infrastructure that will then provide a boost, he said.

“It’s a mixed bag,” said Seneca.

Homeowners have inundated New Jersey Citizen Action with calls since the storm, reporting that Sandy washed away documents that were necessary to complete mortgage modifications, Salowe-Kaye said. Others said they’re now at risk of defaulting because their employers have closed down or are unable to process paychecks. Families without flood insurance are facing financial stress, she said.

Forbearance Plans

Fannie Mae and Freddie Mac said on Nov. 9 that they would suspend evictions and foreclosure sales for 90 days in storm disaster areas. The government-backed housing finance agencies will allow firms that service their loans to extend forbearance plans for up to 12 months. Fannie Mae said it would suspend credit reporting for homeowners who are granted relief.

Other lenders said the storm may hurt their results. JPMorgan Chase & Co. (JPM), the biggest U.S. bank by assets, said any losses will depend on the amount of credit extended to borrowers in the affected areas, the extent of damage and reimbursements from insurance and government that borrowers receive.

Nationwide, foreclosure starts in October rose 2 percent from the previous month, the third straight advance and a sign that banks are disposing of their distressed inventories, according to RealtyTrac’s foreclosure report. Total filings fell 19 percent from a year earlier to 186,455.

Insurance Coverage

Forst and Gambert had no insurance coverage for the interior contents estimated at more than $50,000. He expects the Federal Emergency Management Agency to deny his claim for assistance because his driver’s license and other documentation show his primary residence to be in Newark.

Wells Fargo & Co. (WFC) gave the couple a 90-day grace period on their $2,300 mortgage due Nov. 1, and it took 12 days for them to make the payment, according to Forst. Forked River is in Ocean County, where 5,327 properties valued at almost $1.3 billion were in foreclosure when the storm hit, according to RealtyTrac.

Forst and Gambert looked at two dozen foreclosure properties around Forked River before they found the Windward Drive house in November 2010 and “fell in love with it,” Forst said. Their short-sale bid included a down payment of 30 percent, about $132,000. Their offer was accepted five months later.

“You always get a nice breeze off the water, the scenery is incredible and the sun sets over the bay,” Forst said. “You see the same people in the butcher shop and the ShopRite and everybody knows your name. Even when you’re doing normal things, you’re having fun.”

The lifestyle that has drawn Forst to the shore since childhood, taking day trips from Newark with his mother, hasn’t lost its allure. The couple will sleep on an air mattress while they rebuild, he said.

“We’re back to square one, but the shore is a place that people in New Jersey hold near and dear to their hearts,” Forst said.

To contact the reporters on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net; Prashant Gopal in Boston at pgopal2@bloomberg.net

To contact the editors responsible for this story: Rob Urban at robprag@bloomberg.net; Kara Wetzel at kwetzel@bloomberg.net

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