New Report Reveals Serious Local Economic Impact Of Subprime Mortgage Fallout In New Jersey, Across Country

Washington - U.S. Senator Robert Menendez (D-NJ) today joined Senator Charles E. Schumer, Chairman of the Joint Economic Committee (JEC), and Senator Sherrod Brown (D-OH) for the release of a JEC report analyzing the subprime mortgage foreclosure problem and its economic impact on the most vulnerable communities nationwide (report available here: http://jec.senate.gov/Documents/Reports/subprime11apr2007.pdf). The report, entitled "Sheltering Neighborhoods from the Subprime Foreclosure Storm," argues that foreclosure prevention is cost-effective and presents policy suggestions for curbing future subprime foreclosures. The report highlights seriously affected communities in New Jersey, including Camden, Newark and Edison.

Increases in payment delinquencies and foreclosures in the subprime mortgage market have raised widespread concerns about the possibility of increasing, concentrated foreclosures throughout the country. While lenders and banks figure out how to insure themselves from the consequences of increased subprime mortgage defaults, local communities are also struggling to stem the tide of foreclosures that impose significant costs on families, neighborhoods and cities.

Some of the key findings of the JEC report are:

Subprime foreclosures are expected to increase in 2007 and 2008 as 1.8 million hybrid ARMSmany of which were sold to borrowers who can not afford themreset in a weakening housing market environment.

Varying local economies, housing markets and state regulatory regimes mean that some local areas are getting hit by the subprime foreclosure crisis much harder than others and deserve immediate attention.

It pays to prevent foreclosures in these high-risk cities - every new home foreclosure can cost stakeholders up to $80,000, when adding up the costs to homeowners , lenders, neighbors, and local governments.

Policy responses to the subprime crisis should be designed to address the local foreclosure phenomenon and include both foreclosure prevention strategies and improved mortgage lending regulations.

Sen. Menendez said, "What we are facing is a tsunami of foreclosures. Just a few short years after home ownership levels soared to record highs, the harsh reality brought on by unreasonable mortgages has come crashing down on millions of homeowners. This report digs past the overall story to detail the devastation in America's communities. It is clear that a number of New Jersey communities have been hit hard, as have many others from coast to coast, and I am working in the Banking Committee to solidify the mortgage system. I applaud Chairman Schumer for shedding additional light on this widespread problem."

Sen. Schumer said, "As subprime mortgage lenders scramble to protect their bottom lines, we need to redouble efforts to protect American families and communities who are at the losing end of this mess. The subprime mortgage meltdown has economic consequences that will ripple through our communities unless we act," Schumer said. "It makes good economic sense to make sure our families and neighborhoods are protected from rogue lenders and lax government oversight."

"No region of the country has been harder hit than the Midwest. And no state has a higher rate of foreclosed properties than Ohio. Almost one in four subprime loans is delinquent in the Cleveland area, and statewide it is one in five. Over the past decade, foreclosures have increased almost fourfold in Ohio. We are facing a full-blown housing crisis," said Sen. Brown.

The JEC report includes state and local rankings by foreclosures and delinquencies using RealtyTrac's and First American Loan Peformance's data. The report shows that the Midwest "Rust Belt" (Ohio, Michigan, Illinois, and Indiana), the South and West "Sun Belt" (Florida, Georgia, Texas, California, Arizona and Nevada), and Colorado experienced the highest rates of foreclosures in 2006. The hardest hit metropolitan areas also include cities in the Northeastern corridor in New York, New Jersey and Pennsylvania.

The report also analyzes metropolitan areas that are most at risk of rising foreclosures, using February 2007 delinquency data, employment statistics, and housing market indicators.

"All predictions are that we are facing a tsunami of default and foreclosures in the subprime market as homeowners face steep increases in their monthly payments and housing values remain flat, making refinancing virtually impossible," said Rep. Carolyn Maloney (D-NY), Vice Chair of the Joint Economic Committee and Chair of the House Financial Services Subcommittee on Financial Institutions. "The specific local crises documented by this study require swift action at both the state and national level. We will be looking closely at the report's recommendations in the Financial Services Committee."

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