Something funny with the [mortgage] money

The fate of the real estate market continues to hover over Plainfield as we enter the new year.

Though some think I have been something of a Chicken Little over the past several months, the auspices are not good. The ARMs with seductive teaser rates that were so hot in 2005 up until early 2007 are going to face their resets in the first two quarters of 2008.

Two things are going to drive the expected high foreclosure rate for these ARMs -- many of them subprime mortgages:

• First, the properties are not appreciating fast enough (some may even be worth less now than when bought), so there is little or no equity to use to refinance;
  
  
• and, secondly, credit has tightened. People must now show real incomes and real money in the bank. Not good for those with NINJA (No Income, No Job or Assets verification) loans -- otherwise known as 'liar loans'.

All this will sort itself out as the year unfolds.

But I am still mystified by the huge amounts of leverage some homeowners got against their properties while the markets were hot.

This is coming out now as some of these properties slide into foreclosure.

Consider the Berkeley Avenue property I highlighted in November (see here).

It had sold in 2000 for $350,000. It was on the Union County Sheriff's sale list in November with an upset price of $996,000. Speaking with the former owner of the property at the Van Wyck Brooks district's Christmas House Tour, I asked whether he had any idea how so much could be owed on the property. His answer: "All I can think of is there must be some fraud somewhere."

Sunday's Courier ran a story on the continuing rise of foreclosures, pointing out that the first nine months of 2007 outpaced ALL OF 2006 in Union and Middlesex counties.

But there were two eyepopping foreclosures on the list --

• In Green Brook, a house sold in 1998 for $396,889 and appraised in 2006 at $716,200 is being foreclosed with a mortgage of $982,225.
  
  
• In Branchburg, a single-family home bought in 2005 for $235,000, with a 2006 assessment of $513,700 is being foreclosed with a mortgage of $1,564,165.

As Ricky Ricardo used to say, "'Splain me."

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• Courier: "Union county see more foreclosures in 9 months of 2007 than all of 2006"
• Plainfield Today: "Plainfield Foreclosures"
  

-- Dan Damon

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