Why New Jersey is ground zero for foreclosures

Congratulations, New Jersey. Your job growth is barely moving, your unemployment rate is higher than the national average and your state credit rating is facing another downgrade.

Add one more distinction to the list: You're the new ground zero for the U.S. foreclosure crisis.

New Jersey now has the highest share of residential mortgages that are seriously delinquent or in foreclosure, Bloomberg reports, citing recent Mortgage Bankers Association (MBA) statistics. New Jersey moved ahead of Florida, now in the No. 2 spot, while New York comes in third.

Some of the states that previously topped the serious foreclosure list, including Arizona and California, have seen a dramatic improvement after allowing banks to quickly move foreclosures through the system.

By now, many states are quite good at whisking foreclosure proceedings along. In Florida, for example, nearly 119,000 homes completed foreclosures over the last year, NJ.com reports. In New Jersey, however, slightly more than 5,000 were foreclosed.

New Jersey used to plow through the foreclosures at light speed, processing some 150,000 in 2009, Bloomberg reports. But then claims arose of "robo-signing" -- unauthorized documents automatically shunted through the system -- leading the state's attorney general to begin an investigation. New Jersey has announced several settlements, usually as part of multistate agreements, with companies accused of robo-signing practices.

The robo-signing-related slowdown appeared because New Jersey forces banks to get approval from a judge before foreclosing. And that legal hurdle has delayed the entire process. About 7.9 percent of mortgages in the state were in foreclosure at the end of last year, according to NJ.com. The number of homeowners losing their homes hit a three-year high last year in the state and in neighboring New York.

"It is really a delayed reaction in New Jersey and New York," said Michael Fratantoni, chief economist for the MBA, told Bloomberg. "Loans that were made pre-crisis have been in this state of suspended animation for a number of years. And now, we are beginning to see the pace of resolution pick up."

New Jersey has begun moving faster, and now it takes only about two months for banks to get a final judgment against a delinquent homeowner. That's down from nine months a few years ago.

And while a slimmed-down foreclosure portfolio will undoubtedly help, New Jersey's housing market is suffering from other problems that aren't as easily cleaned up. The state must still contend with high property taxes as well as a large inventory of aging homes. There's also the question of what to do with bank-owned homes that have sat vacant for years as piping and other materials were looted.

The nation's overall foreclosure picture is improving, with the percentage of loans in foreclosure at about 2.86 percent, the MBA reports. That's the lowest rate since 2008.

Said Fratantoni: "We continue to see substantial improvement in both delinquency and foreclosure rates, with most measures now back to pre-crisis levels." But for now at least, New Jersey is trailing the pack.