An NASE survey was the first to provide compelling evidence of small business involvement in the “toxic” mortgage crisis. The survey was created by Prof. Samuel D. Bornstein and Jung I. Song, CPA of Bornstein & Song, CPAs and 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 and small business owners.
One key goal of this survey was to shed light on research completed by Prof. Bornstein that a significant number of small businesses are at-risk of mortgage default, due to the fact that they have “toxic” mortgages such as Alt-A, Alt-A ARMs, Option ARMs, Interest-Only, etc. Whereas subprime mortgages were issued to borrowers with low credit scores, these “toxic” mortgages were targeted to small business owners who were prime and near-prime borrowers.
The results of this survey highlight the fact that small business holds the key to mitigating the losses on the defaulting “Troubled Assets” in the TARP and Fannie Mae and Freddie Mac.
It is a tragedy when an individual borrower defaults on the mortgage and loses his/her home. The tragedy is magnified when the borrower is a small business owner, employing from 1 to 10 employees. The loss of jobs related to mortgage defaults and the resulting business failures will further weaken our economy and prolong the recession.
Small business is the job creation engine of our economy. Proactive efforts must be taken to provide small business owners with immediate and specific financial guidance, combined with other measures, to avoid default on mortgages and other debts in this critical and challenging financial crisis.
Author Resource:-
NASE website at www.nase.org for the complete survey and Commentary by Prof. Bornstein.
The National Association for the Self-Employed (NASE) Survey
www.nase.org NASE NEWS "toxic" mortgages held by Micro-Business Owners
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