New Jersey Real Estate Report

From the Daily Record:

Morris woman admits to $1.2 million real estate scam

A Convent Station woman faces up to a decade in prison after admitting in court Thursday that she accepted $1.2 million from investors but didn’t follow up with promises to purchase homes in foreclosure, re-sell them, and split the profits.

Leigh O’Neill, 38, pleaded guilty before state Superior Court Judge Salem Vincent Ahto in Morristown, to one count of theft by deception between July 2005 and Oct. 31, 2006.

Under questioning by defense attorney Deborah Factor, O’Neill — in a barely audible voice — said she approached investors with a plan to buy distressed properties and re-sell them. Court papers filed in connection with lawsuits against O’Neill said she purported to buy homes facing foreclosure in Randolph, Long Beach Island, Sparta, Parsippany and Roxbury, and that her plan was to re-sell them and split net profits with the investors so that they received 70 percent and she got 30 percent.

In reality, O’Neill said in court, she bought no properties but gave investors the impression she did, and used money provided to her by some investors to pay off others. [aka Ponzi scheme, jb]
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“Even though this defendant has paid substantial restitution, the fact remains that this continuing course of defrauding investors needs to be punished,” Prosecutor Robert A. Bianchi said. “We will ask the court to impose a 10-year state prison sentence which we believe is appropriate considering the scope and breadth of this fraud.” Investors in 2006 filed suit against O’Neill, which led to a criminal investigation that was spearheaded by prosecutor’s office Detective Steve Murzenski.

From RealtyTrac:

U.S. FORECLOSURE ACTIVITY INCREASES 5 PERCENT IN Q3

New Jersey - Q3 Foreclosure Activity
Lis Pendens - 11,816 (Defaults)
Notice of Sale - 3,878
REO - 2,414

From Bloomberg:

U.S. Foreclosure Filings Jump 23% to Record in Third Quarter

U.S. foreclosure filings climbed to a record in the third quarter as lenders seized more properties from delinquent borrowers, according to RealtyTrac Inc.

A total of 937,840 homes received a default or auction notice or were repossessed by banks, a 23 percent increase from a year earlier, the Irvine, California-based seller of default data said today in a report. One out of every 136 U.S. households received a filing, the highest quarterly rate in records dating to January 2005.

“The problem is prime loans going into foreclosure and people being underwater and losing their jobs,” Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles, said in an interview. “It’s a really bad number.”

Mounting foreclosures mean U.S. home prices probably will resume falling, analysts from Amherst Securities Group LP in New York said Sept. 23. A “shadow inventory” of 7 million properties are in the foreclosure process or likely to be seized, up from 1.27 million in 2005, they said.

The pace of prime and so-called alt-A loan defaults is accelerating as subprime defaults slow, Standard & Poor’s analysts led by Diane Westerback said yesterday in a report. Prime loans are those made to borrowers with the best credit records while alt-A loans are considered riskier because they were often granted without documenting the borrower’s income.

From CNN/Money:

Foreclosures: ‘Worst three months of all time’

Despite concerted government-led and lender-supported efforts to prevent foreclosures, the number of filings hit a record high in the third quarter.

“They were the worst three months of all time,” said RealtyTrac spokesman Rick Sharga.

During that time, 937,840 homes received a foreclosure letter — whether a default notice, auction notice or bank repossession — according to RealtyTrac, the online marketer of foreclosed homes. That means one in every 136 U.S. homes were in foreclosure, which is a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.

From the Wall Street Journal:

Foreclosures Grow in Housing Market’s Top Tiers

New data suggest that foreclosures are rising in more expensive housing markets.

About 30% of foreclosures in June involved homes in the top third of local housing values, up from 16% when the foreclosure crisis began three years ago, according to new data from real-estate Web site Zillow.com. The bottom one-third of housing markets, by home value, now account for 35% of foreclosures, down from 55% in 2006.

The report shows that foreclosures, after declining earlier this year, began to accelerate in the late spring and that more expensive homes have more recently accounted for a growing share of all foreclosures. “The slope of that curve in recent months is much sharper than it was recently,” said Stan Humphries, chief economist for Zillow. Rising foreclosures among more-expensive homes could create added pressure for a housing market that has shown signs of stabilizing in recent months as sales of lower-priced homes pick up.
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Foreclosures are rising in more expensive markets as home values in those areas fall, leaving more homeowners with mortgages that exceed the value of their properties. Prime loans accounted for 58% of foreclosure starts in the second quarter, up from 44% last year, according to the Mortgage Bankers Association. Subprime mortgages accounted for one-third of foreclosure starts, down from one-half last year.

The prime category includes so-called exotic mortgages that were increasingly used to buy more expensive homes, including interest-only mortgages that allowed borrowers to defer principal payments during an initial period. Borrowers often aren’t able to refinance out of these products because the drop in home values has left them with little equity in their homes.

From the Courier Post:

Foreclosure bites South Jersey hard

When first-time home buyer Derrick Hannah saw a three-bedroom ranch home in Willingboro, he fell in love with its spotless kitchen and its expansive backyard with a patio.

But, a couple of years ago, after buying it for $80,500 with no down payment, the father of three lost his computer job and later was served a foreclosure notice. He refinanced his mortgage three times to avoid foreclosure until he owed $185,000 on the same home, valued at $224,000 just two years ago.

This week, he finally sold his home at 48 Edgemont Lane in Garfield East — but for only $130,000 — to a single parent family in a “short” sale, which leaves the mortgage lender $55,000 short of the total loan amount but which allows Hannah to leave his home with no mortgage debt.
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Willingboro, a municipality with lower median incomes, has been especially affected by foreclosures. It had the highest number so far this year in the tri-county area of Burlington, Camden and Gloucester with 330, but even wealthier communities are at the top of the foreclosures list.

Gloucester Township was second in the region with 323 foreclosures so far this year, followed by Winslow at 298, Camden at 256 and Washington Township at 206. Except for Camden, the other three municipalities have higher median incomes than Willingboro.
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The highest number of monthly foreclosures ever filed against property owners in New Jersey — 6,133 — occurred in June and then fell to 5,813 by July, which was still more than in July 2008.

In the tri-county area, the more populous Camden County led with 2,214 foreclosures for the first seven months of this year, according to figures provided by the state Administrative Office of the Courts through July 31. Burlington County had the second highest total with 1,904 followed by the least populated Gloucester County with 1,301.
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Burlington County Freeholder Christopher Brown of Marlton, who owns ReMax real estate and title insurance agencies, said short sales now represent about 55 percent of the home resale market.

From Reuters:

The Flood of Foreclosures Shows No Sign of Ebbing

Every 13 seconds in America, there is another foreclosure filing. That’s the rhythm of a crisis that threatens to choke off hopes for a recovery in the U.S. housing market as it destroys hundreds of billions of dollars in property values a year.

There are more than 6,600 home foreclosure filings per day, according to the Center for Responsible Lending, a nonpartisan watchdog group based in Durham, North Carolina. With nearly two million already this year, the flood of foreclosures shows no sign of abating any time soon.

If anything, the country’s worst housing downturn since record-keeping began in the late 19th century may only get worse since foreclosures, which started with subprime borrowers, have now moved on to the much bigger prime loan market on the back of mounting unemployment.

In congressional testimony last month Michael Barr, the Treasury Department’s assistant secretary for financial institutions, said more than 6 million families could face foreclosure over the next three years.
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The Center for Responsible Lending says foreclosures are on track to wipe out $502 billion in property values this year.

That spillover effect from foreclosures is one reason why Celia Chen of Moody’s Economy.com says nationwide home prices won’t regain the peak levels they reached in 2006 until 2020.

In states hardest-hit by the housing bust, like Florida and California, the rebound will take until 2030, Chen predicted.

“The default rates, the delinquency rates, are still rising,” Chen told Reuters. “Rising joblessness combined with a large degree of negative equity are going to cause foreclosures to increase,” she added.

Anyone doubting that the recovery in U.S. real estate prices will be long and hard should take a look at Japan, Chen said.

Prices there are still off about 50 percent from the peak they hit 15 years ago.

Estimated NJ foreclosures: 60,000
Estimated helped by the program: 16,000
Actual helped by the program: 854 (5% of estimate)
Cost: Priceless
No, really: $12,500,000 (~$15,000 per case)

Just for reference, according to RealtyTrac, there were 6,043 Notices of Delinquency, 1,396 Notices of Sheriff Sale and 877 Sheriff Sales in August.

From the NJ Office of the Attorney General:

Statewide Mortgage Foreclosure Mediation Program Launched
Initiative aimed at helping thousands of homeowners facing foreclosure

A new state-supported mortgage foreclosure mediation program is in place to help the thousands of New Jersey homeowners facing foreclosure throughout the state, Gov. Jon S. Corzine, Chief Justice Stuart Rabner and Attorney General Anne Milgram announced today.
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Gov. Corzine signed legislation in December supporting the program with $12.5 million in state funds.
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Planners anticipate as many as 16,600 homeowners will participate in the foreclosure mediation program this year. It is estimated that as many as 60,000 homeowners may go through foreclosure this year.

From the Record:

NJ foreclosure mediation program criticized

A state initiative to help troubled homeowners has aided only a small percentage of the estimated 60,000 homeowners who face foreclosure this year, a study from the National Consumer Law Center said Wednesday.

The study looked at foreclosure mediation programs in 14 states, including New Jersey. The study said mediations were completed in 854 New Jersey cases from mid-January, when the program started, to the end of June.

The report said that New Jersey provides “considerable financial support for foreclosure mediations” – paying for housing counselors, attorneys and outreach.

David Wald, a spokesman for the state attorney general, defended the mediation effort.

“We think we have a pretty effective program,” he said, adding that it has helped more than 500 homeowners keep their homes so far this year.

From Reuters via CNBC:

Mortgage Delinquencies Rise Alongside Unemployment

High U.S. unemployment keeps pushing up the rate of mortgage delinquencies, which could in turn drive personal bankruptcies and home foreclosures, monthly data from the Equifax credit bureau showed on Monday.

Among U.S. homeowners with mortgages, a record 7.58 percent were at least 30 days late on payments in August, up from 7.32 percent in July, according to the data obtained exclusively by Reuters.

August marked the fourth consecutive monthly increase in delinquencies, and the report showed an accelerating pace. By comparison, 4.89 percent of mortgages were 30 days past due in August 2008, while in August 2007, the rate was 3.44 percent, Equifax data showed.

The rate of subprime mortgage delinquencies now tops 41 percent, up from about 39 percent in each of the prior five months.

The results, which correlate with consumer bankruptcy filings, suggest U.S. homeowners remain under financial stress despite signs of improving sentiment and fundamentals in the U.S. housing market.

August bankruptcy filings were up 32 percent from a year earlier, compared with a 35 percent year-over-year increase in July.

From the Star Ledger:

N.J. foreclosure filings up 43 percent in July

Residential foreclosure complaints in New Jersey were up 43 percent in July over the same month last year, but dipped slightly from June’s high, according to data from the state judiciary.
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Foreclosure filings were up by 50 percent or more in eight of New Jersey’s 21 counties: Monmouth, Atlantic, Bergen, Hudson, Sussex, Somerset, Hunterdon and Middlesex counties.

From the Press of Atlantic City:

Bad news on foreclosures catching up to New Jersey

Foreclosure filings kept surging in Atlantic and Cape May counties in August, even as they fell slightly nationwide.
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Atlantic County foreclosures increased 26 percent in August after jumping 36 percent in July, while Cape May County saw increases of 25 percent in August and 34 percent in July.

Filings in New Jersey rose 29 percent from July to August after soaring 49 percent the month before.

“Part of the reason for New Jersey’s increase over the last two months is that the volume of foreclosure activity was so high over the last year or so that the Superior Court got behind in processing the paperwork,” Daren Blomquist, spokesman for RealtyTrac, said Wednesday. “Now they’re catching up with activity that under normal conditions would have shown up in previous months.”

From Bloomberg:

U.S. Foreclosure Filings Top 300,000 for Sixth Straight Month

Foreclosure filings in the U.S. exceeded 300,000 for the sixth straight month as job losses that boosted the unemployment rate to a 26-year high left many homeowners unable to keep up with their mortgage payments.

A total of 358,471 properties received a default or auction notice or were seized last month, according to data provider RealtyTrac Inc. That’s up 18 percent from a year earlier, and down 0.5 percent from July, the Irvine, California-based company said in a statement. One in 357 households received a filing.

From Crain’s New York Business:

Foreclosed properties go for 14 cents on dollar

More than a thousand real estate bargain hunters spent $13.2 million Sunday snapping up foreclosed homes in New York and New Jersey during an auction in New York City. In addition, two successful bidders walked away with oceanfront lots in the Bahamas—at discounts of about 85%.

At its last New York City event for the summer, Real Estate Disposition Corp.’s Auction.com put 149 properties on the block, including 10 vacant lots totaling 2.5 acres located in Cistern Cay on the Berry Islands, just northwest of Nassau.
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Other deals of the day included the sale of a 1,498-square-foot, four-bedroom house in Suffolk County, L.I., for $126,000, 67% less than its stated value of $381,000, and the sale of an artsy 3,150-square-foot, 18-room, seven-bedroom house in the Bronx, for $367,500, 37% less than its estimated value of $595,000.

“These auctions will clear up inventory,” says Bill Staniford, CEO of PropertyShark.com. “We will see more foreclosed homes auctioned off.”

Foreclosures in the five boroughs were up 14.8% in July, to 2,192, from the same time last year, according to market research firm RealtyTrac.

Auction.com’s latest event attracted a slightly smaller crowd than its previous auctions. Of nearly 1,500 pre-registered attendees, only 1,175 showed up at the Sheraton New York Hotel and Towers in midtown Manhattan. The company’s previous New York events in March and June drew crowds of more than 1,200 and drummed up about $28.2 million in sales from more than 300 properties.

“REDC has been pretty successful,” said Mr. Staniford, who did not attend Sunday’s event. “It’s a decent turnout considering most people are on vacation during this period.”

So far this year, Auction.com, a subsidiary of Irvine, Calif.-based REDC, has auctioned more than 20,000 foreclosed houses across the nation for $1.4 billion.

From the Record:

Foreclosure activity up sharply in N.J.

New Jersey’s recent good news of falling home foreclosure rates was interrupted in July, with default activity climbing higher than the national average, according to data from foreclosure information provider RealtyTrac Inc.

Home foreclosure activity rose sharply — by nearly 40 percent — last month statewide compared with a year ago, said RealtyTrac of Irvine, Calif. National foreclosure activity rose 32 percent from the same month last year.

Default filings had declined by 30 percent in the first half of the year, dropping 13 percent in June, 41 percent in May and 3.5 percent in April from those same months a year ago.

“Part of it [July's dramatic increase] is due to a backlog in the courts, which process these documents,” said Daren Blomquist, RealtyTrac spokesman. “So they were able to catch up on some of the backlog in July.”

Blomquist said RealtyTrac was seeing a similar pattern in other states where foreclosures are filed through the courts, such as in New Jersey. July’s foreclosures of 6,467 homes was the highest since October 2008, he said.

Another factor in the foreclosure rate surge was that relief from the state’s Mortgage Stabilization and Relief Act was coming to an end. That provided several programs and funding to delay foreclosures for troubled homeowners in the hope that they could eventually repay their loans.

“There definitely has been a time when the numbers were looking good in New Jersey,” said Blomquist. “What that legislation did was not a long-term solution for a lot of borrowers.”

He said other states that enacted similar legislation also had temporary drops in foreclosure activity only to see it rebound in a few months.

“It [such programs] slows down recovery and keeps the foreclosure process on these homes in limbo and hanging over the market,” said Blomquist.

In New Jersey, 6,467 residences had foreclosure proceedings against them last month, or one in every 541 houses. Nationwide, 360,149 properties, one in every 355 homes, were in some phase of the foreclosure process.

From RealtyTrac courtesy of the Record:

* Foreclosure filing rates for New Jersey for July, by county:
* Bergen: 1/805 homes, ranked 18th out of 21 New Jersey counties in foreclosure rate
* Passaic: 1/384, ranked third
* Morris: 1/952, ranked 20th
* Hudson: 1/758, ranked 16th
* Essex: 1/375, ranked second
* Union: 1/326, ranked first

From the Wall Street Journal:

Commercial Loans Failing at Rapid Pace

U.S. banks have been charging off soured commercial mortgages at the fastest pace in nearly 20 years, according to an analysis by The Wall Street Journal. At that rate, losses on loans used to finance offices, shopping malls, hotels, apartments and other commercial property could reach about $30 billion by the end of 2009.

The losses by regional banks on their commercial real-estate loans will be among the most watched details as thousands of banks report second-quarter results over the next two weeks. Many of the most troubled banks have heavy exposure to commercial real estate. So far, 57 banks have failed this year.

The $30 billion estimate is based on financial reports filed by more than 8,000 banks for the first quarter. The trend continued as a handful of major banks reported second-quarter results, including Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Bank of America Corp. Regional banks tend to have higher exposure to commercial real estate than these big financial institutions.

The commercial real-estate market, valued at about $6.7 trillion, represents 13% of the U.S.’s gross domestic product. But the recession and scarce credit are pushing more commercial developers and investors into default. Meanwhile, property values continue to decline, and banks are required to record a loss on any troubled real-estate loans where the appraised value falls below the amount owed.

Delinquencies on commercial mortgages held by banks more than doubled to about 4.3% in the second quarter from a year earlier, Foresight Analytics estimates. Rep. Carolyn Maloney (D., N.Y.), who heads the House’s Joint Economic Committee, said she is working with Treasury Department officials on a plan to try to head off rising defaults on commercial mortgages before they cascade into a crisis.

In contrast to home loans, the majority of which were made by about 10 lenders, thousands of U.S. banks, especially regional and community banks, loaded up on commercial-property debt.

From the Record:

Teaneck woman hopes bake sale will help forestall foreclosure

Facing foreclosure on her Teaneck home, Angela Logan is navigating a difficult time like a true PTA mom.

She’s having a bake sale.

The 55-year-old actress, comic and divorced mother of three sons has spread word among her friends and Teaneck’s arts community: Buy one of my famous apple cakes and help save my house.

Since coming up with the idea a week ago, Logan has received orders for 42 “mortgage apple cakes,” at $40 each. That’s nearly halfway toward her goal of selling 100 cakes by July 26, when an initial payment of $2,559.94 is due her lender under a federal program created to help homeowners in financial distress.
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After meeting with a credit counselor, she turned to the Making Home Affordable program, established by the Obama administration to help struggling homeowners reduce their mortgage payments.

According to the terms of her modified loan, Logan has to make three payments of $2,559.94 to Bank of America, which took over Countrywide, by Oct. 1. She thinks she’ll be in good shape if she can get past the first payment.

Enter the apple cake.

From Bloomberg:

U.S. Foreclosure Filings Hit Record 1.5 Million in First Half

U.S. foreclosure filings hit a record in the first half, a sign that job losses and falling property prices deepened the housing recession, according to RealtyTrac Inc.

More than 1.5 million properties received a default or auction notice or were seized by banks in the six months through June, the Irvine, California-based seller of default data said today in a statement. That’s a 15 percent increase from the year earlier. One in 84 U.S. households received a filing.

“People are losing their jobs, seeing their income go down and are underwater on their mortgage,” Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles, said in an interview. “It’s a toxic combination.”

From RealtyTrac:

1.9 MILLION FORECLOSURE FILINGS REPORTED ON MORE THAN 1.5 MILLION U.S. PROPERTIES IN FIRST HALF OF 2009

RealtyTrac®, the leading online marketplace for foreclosure properties, today released its Midyear 2009 U.S. Foreclosure Market Report, which shows a total of 1,905,723 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 1,528,364 U.S. properties in the first six months of 2009, a 9 percent increase in total properties from the previous six months and a nearly 15 percent increase in total properties from the first six months of 2008. The report also shows that 1.19 percent of all U.S. housing units (one in 84) received at least one foreclosure filing in the first half of the year.

Foreclosure filings were reported on 336,173 U.S. properties in June, the fourth straight monthly total exceeding 300,000 and helping to boost the second quarter total to the highest quarterly total since RealtyTrac began issuing its report in the first quarter of 2005. Foreclosure filings were reported on 889,829 U.S. properties in the second quarter, an increase of nearly 11 percent from the previous quarter and a 20 percent increase from the second quarter of 2008.

“In spite of the industry-wide moratorium earlier this year, along with local, state and national legislative action and increased levels of loan modification activity, foreclosure activity continues to increase to record levels,” noted James J. Saccacio, chief executive officer of RealtyTrac. “Unemployment-related foreclosures account for much of this increased activity, and the high number of borrowers who find themselves owing more on their mortgages than their homes’ are now worth represent a potentially significant future risk. Stemming the tide of foreclosures is a critical component to stabilizing the housing market, so it is imperative that the lending industry and the government work in tandem to find new approaches to address this issue.”

From the WSJ:

US Foreclosures Continue Shattering Records: RealtyTrac

National foreclosure filings in the U.S. continue shattering records, propelled by mounting unemployment and continued erosion of home values.

Filings were reported on more than 336,000 properties in June, the fourth-straight month to see the total topping 300,000, according to RealtyTrac’s latest foreclosure report released Thursday. That helped boost the second-quarter’s tally by 20% from the year-earlier period, making it the highest quarterly total since the report’s first-quarter 2005 launch. When counting this year’s first half, one in every 84 homes was slapped with at least one filing, ranging from default notices to bank repossessions.

It’s just more bad news as the limping real-estate market struggles for stability. Foreclosures can command discounts as high as 60%, a drag on surrounding home prices and appraisal values. The data also show that the government’s frantic efforts to keep Americans in their homes haven’t been completely effective, and moratoria crafted to slow foreclosures seem to simply delay the pain. Even worse, with unemployment at a rate not seen in a quarter century, there’s no relief in sight.

From the Record:

20% of construction jobs vanish

One of every five construction jobs in Bergen, Passaic and Hudson counties disappeared over the past year, as building activity plummeted in the face of a recession and housing bust, federal labor officials said Wednesday.

The 21 percent drop in North Jersey construction jobs from May 2008 to May 2009 — from 32,700 to 25,800 — was a record in the 19 years that the federal Bureau of Labor Statistics has been keeping track, according to Martin Kohli, an economist with the BLS’s New York office.

“The housing bubble burst sooner in other parts of the country than it did here, but it seems to have come with a vengeance to Bergen, Passaic and Hudson,” Kohli said.

Even as housing construction nationwide slowed dramatically, building continued at a healthy pace in Bergen and Hudson counties until mid-2008, especially along the Hudson River waterfront. But last summer, construction fell off there as well.

Overall, Bergen, Passaic and Hudson employment shrank by 26,200 jobs, or 2.9 percent, to 884,300 jobs in May 2009. Aside from the construction losses, Bergen, Passaic also saw substantial job cuts in professional and business services, information and financial activities. The decades-long loss of factory jobs also continued.
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The overall New York metropolitan area, including North Jersey, lost almost 233,000 jobs — 2.7 percent of the total — from May 2008 to May 2009.

While the job losses were painful, they were less severe than the nationwide employment contraction of 4 percent. In the region as a whole, the biggest job losses came in construction and manufacturing.

The finance sector also lost jobs, but not as many as expected, Kohli said. Financial employment declined by 4.7 percent in the New York metropolitan area as a whole, and 5.7 percent in Bergen, Passaic and Hudson.

“Last fall, we had an unprecedented financial crisis,” Kohli said. “We expected to see the bottom fall out of financial employment in the area.”

From Bloomberg:

Option ARMs Threaten U.S. Housing Rebound as 2011 Resets Peak

Shirley Breitmaier’s mortgage payment started out at $98 when she refinanced her three-bedroom home in Galt, California, in 2007. The 73-year-old widow may see it jump to $3,500 a month in two years.

Breitmaier took out a payment-option adjustable rate mortgage, a loan popular during the housing boom for its low minimum payments before resetting at higher costs later.

About 1 million option ARMs are estimated to reset higher in the next four years, according to real estate data firm First American CoreLogic of Santa Ana, California. About three quarters of those loans will adjust next year and in 2011, with the peak coming in August 2011 when about 54,000 loans recast, the data show.

Option ARM borrowers hit with unaffordable monthly payments are another threat to the housing recovery and the economy, said Susan Wachter, a professor of real estate finance at the University of Pennsylvania’s Wharton School in Philadelphia. Owners who surrender properties to the bank rather than make higher payments for homes that have plummeted in value will further depress real estate prices and add to the inventory of properties on the market, she said.

“The option ARM recasts will drive up the foreclosure supply, undermining the recovery in the housing market,” Wachter said in an interview. “The option ARMs will be part of the reason that the path to recovery will be long and slow.”
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More than $750 billion of option ARMs were originated in the U.S. between 2004 and 2008, according to data from First American and Inside Mortgage Finance of Bethesda, Maryland. California accounted for 58 percent of option ARMs, according to a report by T2 Partners LLC, citing data from Amherst Securities and Loan Performance.
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“Once you start amortizing that loan, the payment is going to shoot up,” said David Watts, a London-based strategist with research firm CreditSights.

The delinquency rate for payment-option ARMs originated in 2006 and bundled into securities is soaring, according to a May 5 report from Deutsche Bank AG. Over the past year, payments 60 days late or more on option ARMs originated in 2006 have almost doubled to 42.44 percent from 23.26 percent, Deutsche Bank said. For 2007 loans, the rate has climbed from 10.1 percent to 35.25 percent.

“We’re already seeing much higher levels of delinquencies of these option ARM loans even before you reach the point of the recast,” said Paul Leonard, the California director of the non- profit Center for Responsible Lending.

The threat of soaring payments has counselors at Housing and Economic Rights Advocates busy.

“There’s a level of hopelessness to the phone calls now,” said Brown.