Two days ago, on Sunday, I posted about “The Next Mortgage Shock.”
Reader Professor Bornstein (Professor of Accounting & Taxation of Kean University, School of Business, Union, NJ) had an interesting point of view that had not been considered in the story or in the referenced video.
In case you missed it, here’s what he said:
I would like to bring a very important NASE survey finding to the attention of all. I have been trying to bring this to the attention of Washington because they must address the following topic as quickly as possible.
This relates to the upcoming wave of Foreclosures in 2009 that are due to the resetting of the “Toxic” mortgages.
Many fail to realize that there are millions of self-employed smaller businesses, who employ from 1-10 employees that are holding these risky mortgages. So, here we have a major problem… Not only will these small business owners lose their homes, but there will be the resulting JOB LOSSES on their business failure. Note, although President-Elect Obama is stressing the need to create 3 million new jobs, we must understand that “JOB RETENTION IS AS IMPORTANT AS JOB CREATION”.
Our priority should be to be PROACTIVE in addressing these small business owners’ need to avoid defaulting on their mortgages. They require “Immediate and Specific Financial Guidance” to weather this storm.
The 2nd Wave of Foreclosures has made it to the mainstream Media. CBS’s 60 Minutes had a segment on 12/14/08, but they missed a very important point. Here is a post which may have merit for your blog…….
I would like to bring a very important bit of information to your attention that relates to this economic crisis that was overlooked until now.
On Sunday, 12/14/08, CBS 60 Minutes aired a segment “The Mortgage Meltdown”.
Scott Pelley’s piece on the 2nd Wave of Foreclosures overlooked a critical fact.
The segment missed the fact that this next wave of Foreclosures in 2009 will Take Self-Employed and Smaller Businesses who have these TOXIC mortgages. In fact, ALT-A, Option ARMS, Interest-Only, the TOXIC Mortgages that are considered the “Troubled” assets in TARP were specifically marketed to the self-employed who fell prey to them.
The upcoming defaults on these risky “Toxic Mortgages” will result in an increase in foreclosures. But worse, once these small businesses fail, the resulting loss of jobs will cause millions to add to the ranks of the unemployed. Note that self-employed business owners (16.2 million according to the SBA) employ between 1-10 employees.
An NASE survey at http://www.nase.org, was the first to provide compelling evidence of small business involvement in the upcoming toxic mortgage crisis. The survey was created by Prof. Samuel D. Bornstein and Jung I. Song, CPA of BornsteinSong Consultants in Oakhurst, NJ, and was conducted by the National Association for the Self-Employed (NASE) which issued a Press Release on November 21, 2008.
According to this survey, it is estimated that 3,709,800 small business owners hold Alt-A and other toxic mortgages, and 1,279,800 are already delinquent as they have missed one to three or more monthly mortgage payments at mid-November, before the expected Resets that are scheduled to begin in 4th Quarter 2008 through 2012.
These small business owners will be at-risk of payment shock and default as their monthly mortgage payments skyrocket. Small business owners were especially targeted for these Alt-A loans which required little or no documentation of income which appealed to many small business owners who previously were unable to qualify.
The resulting defaults will be the cause of the upcoming second tsunami wave of foreclosures that will dwarf the subprime crisis and will take many homeowners, small business owners, and their employees at this critical time when our economy can ill afford it.
I have to agree with Professor Bornstein’s assessment and have checked with a few accountants who all confirmed that most of their self-employed clients went for no-documentation loans when they purchased real estate a few years ago. And why not? If no one asks you to verify anything why bother offering to provide any kind of documentation.
The loan process has clearly failed because it was riddled with fraud and abuse during the real estate orgy of the past. Now it’s time to pay the piper.