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N.J.’s distressed mortgages continue to grow, report says

Garden State ranks 24th in U.S. in delinquencies, fifth in foreclosures.The percentage of New Jersey residential mortgages in some stage of foreclosure or delinquency is continuing to rise, hitting nearly 14.5 percent during the third quarter, according to a new survey released by the Mortgage Bankers Association on Thursday.

The delinquency rate for residential mortgages in New Jersey was 9.03 percent at the end of the third quarter — up from 6.11 percent during the same period a year ago, the survey said. Meanwhile, the percentage of loans in foreclosure climbed to 5.45 percent during the third quarter, compared to 3.06 percent in the previous year’s period, according to the report.

Rising delinquencies and foreclosures are directly tied to the job market, said Patrick O’Keefe, director of economic research at J.H. Cohn, a Roseland-based accounting firm. The rise in both unemployed and underemployed workers, coupled with a record number of households dependent on two incomes, has put significant stress on mortgage holders, he said.

“As we continue to lose jobs, there are an increasing number of households that potentially have problems in servicing their mortgages,” O’Keefe said. At the same time, home prices are flat, so “they can’t sell the house and get out from under the mortgage, because all too often, the mortgage is underwater.”

At the New Jersey Building Materials Dealers Association’s annual meeting earlier this week,

Jeff Otteau, president of Otteau Valuation Group, an East Brunswick-based appraisal and consulting firm, said that the state’s foreclosure problem was worsening: “The numbers are at an all-time high.”

In September, the state had 1,074 homeowners who lost their homes in sheriff’s sales, Otteau said, a problem that “will continue to rise into next year, and then it will start to get better as the job market improves.”

The Garden State ranked 24th in the nation in delinquencies and fifth in foreclosures, according to the MBA. Nationally, delinquencies accounted for 9.94 percent of all home mortgages, while foreclosures made up 4.47 percent, the association said.

The relatively high percentage of foreclosures in New Jersey may be somewhat misleading, since the state’s office of foreclosures has been historically understaffed, creating a growing backlog as the number of foreclosure filings escalated over the last two years, O’Keefe said. It was not until early 2009 that staffing at the office was brought up to sufficient levels to address the backlog.

“Our current level of foreclosures are higher because of the reduction in that administrative backlog,” he said. “We may be ranking higher because of the progress that office has made in getting its house in order.”

The number of delinquencies and foreclosures will continue to grow until the job market begins to pick up, O’Keefe said. He expected the U.S. economy to begin adding jobs late in the first quarter or early in the second quarter of 2010, but New Jersey’s employment market may not begin to recover until later in the second quarter, he said.

“I don’t think New Jersey is going to be ahead of the curve in jobs gains, because of our regional circumstances,” O’Keefe said. The state is still reeling from the fallout of the financial meltdown, as well as consolidations in the pharmaceutical and telecommunications industries, he said. “We don’t yet have the impetus of job growth.”

E-mail Evelyn Lee at elee@njbiz.com

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