The Times of Trenton
Sam Ali
August 5, 2008

A study released by the Federal Reserve Bank of New York  yesterday paints the starkest picture of the subprime mortgage crisis in New Jersey to date. New Jersey’s ratio of subprime mortgages – those high-cost loans given to borrowers with less-than-perfect credit – in foreclosures is the nation’s fifth-highest and actually exceeds the national figure, according to the study.

The study also found the home foreclosure crisis in New Jersey does not cut across all neighborhoods and economic classes in the state. Rather, subprime-related foreclosures are concentrated in clusters of largely urban zip codes, creating specific pockets of economic pain in low- and moderate-income neighborhoods.

Overall, there are three subprime mortgages in foreclosure for every 1,000 housing units in New Jersey, the study said.

"Residents in these neighborhoods are mostly at the lower end of the household income range for each county," the report said.

There were more than 10,446 subprime mortgages in foreclosure in New Jersey as of June. And many more houses are falling into default every month. Currently, New Jersey has slightly more than 3.47 million housing units.

It once would have seemed unthinkable to lump New Jersey in the same category as Nevada, California, Arizona and Florida – four states at the center of the housing meltdown.

Still, the Fed stressed the state’s absolute number of properties in foreclosure is still considerably lower than those of the most severely affected states in the country. For example, Florida has 52,974 subprime mortgages in the foreclosure process, five times more than New Jersey in terms of absolute numbers, and California has 61,107, nearly six time as many as New Jersey.

The New Jersey counties with the largest share of subprime mortgages in foreclosure – a combined 25 percent – are Essex and Union, the study found.

In Essex County, about 75 percent of subprime mortgages in the foreclosure process – a total of 1,127 loans – are concentrated in 11 of the county’s 31 zip codes. Those 11 zip codes are in Bloomfield, East Orange, Irvington, Newark, Orange and West Orange.

Together, these 11 areas have 6.7 subprime mortgages in foreclosure for every 1,000 housing units. That is more than twice as high as the state average and even higher than the state of Florida – one of the hardest-hit areas in the country. In Florida, 6.2 subprime mortgages are in foreclosure for every 1,000 housing units.

In Union County, the picture is even more bleak.

The majority of subprime mortgages in the foreclosure process there – a total of 789 loans – are concentrated in eight of the county’s 26 zip codes. The eight zip codes are in Elizabeth, Hillside, Linden, Plainfield, Roselle and Union.

Together, these eight areas have 8.1 subprime mortgages in foreclosure for every 1,000 housing units.

The negative effect on neighborhoods with high concentrations of subprime mortgages in foreclosure is high, the report said.

"This trend is promoting growing concern about the potential impact on individual homeowners as well as on the neighborhoods where these properties are concentrated," the report said.

Research by the Fannie Mae Foundation found each individual foreclosure in a neighborhood reduces the value of surrounding houses about 1 percent. In addition, each time foreclosures rise 1 percent, crime increases 2.33 percent in the neighborhood, according to a study by the Georgia Institute of Technology and Chicago’s Woodstock Institute.

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