California: Ground Zero for America’s Foreclosure Crisis
Submitted by Prof. Samuel D. Bornstein (not verified) on Thu, 07/21/2011 - 11:03am.
Our Bornstein & Song Small Business Toxic Mortgage Surveys, U.S. National (Nov. 2008), California (April 2009), and California Hispanic (June 2009), provide the first compelling evidence that a significant number of small business owners are stuck with toxic mortgages such as Alternative-A (Alt-A), Option ARMs (Adjustable-Rate Mortgages), Interest-Only, Subprime etc., which they acquired by refinancing their home equity during the Housing Bubble in order to quench their continuous need for cash for their newly created or existing businesses. These small business owners placed themselves at-risk of payment shock at the resetting of these negative amortization mortgages in 2009 to 2012 and beyond. They are now at-risk of financial distress, default, and foreclosure. The resulting job loss for their employees will impact unemployment and the housing crisis.
In order to determine the extent of small business owner involvement in these toxic mortgages, we authored three Small Business Toxic Mortgage Surveys. In November 2008, after concluding our U.S. National survey, we selected California because more than 58 percent of all toxic mortgages in the U.S. originated in the State of California, and its small business owners were at greatest risk. These Surveys confirmed the 2nd “Tsunami” Wave of Foreclosures & Job Loss in 2009 to 2012, related to small business owner involvement in the toxic mortgage crisis.
Small Business Toxic Mortgage Surveys Highlights:
• Respondents took out mortgages after 2004: U.S. 60.1%; California 55.4%; California Hispanic 53.3%.
• Respondents cashed-out the equity in their homes as home values spiked during the 2004-2007 housing bubble: U.S. 33.9%; California 34.3%; California Hispanic 36.9%.
• Respondents have toxic mortgages: U.S. 31.9%; California 51.8%; California Hispanic 52.6%.
• Respondents are expecting resets between 2009 and 2012: U.S. 22.9%; California 34.9%; California Hispanic 44.7%.
• Respondents are "very worried" about their monthly mortgage payment at reset: U.S. 18.4%; California 29.9%; California Hispanic 49.3%.