“Too much cheap money”

From the Times Trenton:

More owners facing foreclosure

Two years ago, when the housing market was booming, William Soodul figured he would reduce his costs with a “creative mortgage.”

He took out a $226,500 adjustable-rate mortgage on his A-frame home in Allentown with a 1.8 percent interest rate and monthly payments that were not applied to either the principal or the interest. His plan was to refinance before his interest rate rose and higher payments kicked in.

But Soodul, a 61-year-old self-employed title insurer, got the surprise of his life when he tried to line up a conventional mortgage last month. Not only would his costs rise $7,000 a year if he kept the mortgage, he would have to pay a $10,000 prepayment penalty just to get out of the deal.

Soodul, a former mayoral and council candidate in Allentown, is among the legions of consumers finding out the hard way these days about the cooling housing market.

Easy credit deals have evaporated and the complex underpinnings of some loans, like the negative amortization mortgage Soodul took out, are becoming all too clear to an increasing number of homeowners.

Soodul is battling back by filing a complaint with the state banking department in which he contends he was misled by the mortgage company about the costs of the loan.

Others are in more dire straits. In county offices throughout the state, foreclosure filings are rising sharply, meaning lenders are seeking to take control of properties after borrowers miss payments. Those homes can then be sold at sheriff’s sales or through real estate agents.

“We’ve seen a 30 percent increase in our foreclosures in the last five or six months,” said Mercer County Clerk Paula Solami-Covello. “Some lending institutions made it easier for people to get mortgages, and maybe they don’t make the salary to pay for them. People are getting into situations where they just can’t pay.”

All towns in the county, even wealthier areas where homes carry price tags of $500,000, have seen increases in foreclosure filings, which are the first step toward a sheriff’s sale, Solami-Covello said. In 1998 and 1999, there were about 1,000 new foreclosure filings in Mercer County for the entire year. This year, 421 were filed through the end of March.
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There was a 70 percent increase in new foreclosure filings statewide from the third quarter of 2005 to the third quarter of 2006, said Jeff Posner, owner of SheriffSalesOnline.com, a Web site that tracks the filings. In January, the state filings more than doubled over the same month last year; in March, filings were up 22 percent.
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While the housing market always has its share of distressed borrowers, experts believe boom-time credit practices are accelerating the pace this time around.

“A lot of cheap money out there was fueling the real estate market,” said Timothy Duggan, who chairs the bankruptcy and creditor’s rights group for the law firm Stark & Stark.

“Wages haven’t kept up with the increase in the housing costs,” Duggan said. “There is a higher default rate because people are struggling to service their debt.

“People, over time, have taken on too much debt,” he added.

“Lower interest rates and the ability to obtain from the subprime market by less qualified borrowers are factors. Others have just continued to borrow.”
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Borrowers who get into trouble can’t rely on selling their homes to pay off their debt.

Real estate values have dropped, and houses are remaining on the market longer.

From 2000 to 2005 housing prices in New Jersey rose 85 percent, said Pat O’Keefe, the CEO of the New Jersey Homebuilder’s Association. But beginning in 2006, the “housing market stalled,” he said. “Particularly in the resale sector. It ground to a halt.” Sales are down 20 percent since 2005, he said. This spring, prospective sellers are becoming more realistic and lowering their prices, he said. But sales are still “very sluggish” except for houses at or below $300,000, he said.

In Mercer County, 4,450 homes sold at an average price of $341,017. That’s down from 5,410 sold in 2005, according to Greg Williams of TREND Multiple Listing Service. In Burlington County, 6,402 houses were sold last year at an average price of $284,693, down from 7,580 the previous year. While real estate agents try to work with those hard-pressed homeowners to sell their houses, it’s often very difficult to make a sale in time to save their equity, said Peter Doolan of Doolan Realty.