Foreclosures Rise as Unemployment Levels Peak

With the American economy on a tailspin, unemployment is rising thick and fast. As people lose jobs, they are finding it difficult to make mortgage payments. Hence, foreclosures are at an all-time high. While initially, it was the subprime mortgage that had sent the market crashing now unemployment is the primary factor. As people lose jobs, even those with good credit history are unable to make payments.

It may be noted that one in each seven home mortgage in the country is due and in various stages of foreclosure. This is the highest delinquency measure in the country. The MBA’s chief economist, Jay Brinkmann, says that although recession ended in mid-June, yet mortgage defaults continue. According to the MBA report, initially the foreclosure crisis was due to subprime mortgage defaults. Now the crisis has spread to the affluent areas too. This has been triggered off by unemployment. The crisis is spreading like an infection, says the chief economist at Moody’s Economy.com. Mark Zandy believes that unemployment has to be checked if the foreclosure crisis is to be ebbed out.

Also there have been regional concentrations. In California, Florida, Arizona and Nevada, the crisis is acute. In fact, these four states had been at the centre of the housing boom. Now these regions account for 43 per cent of the foreclosure rates. What is startling, one in every four mortgage payments in Florida is in foreclosure. This is very discouraging as it shows that the real estate sector is yet to stabilize. According to the National Association of Realtors, a fresh stock of foreclosed properties will hit the market. That will again pull down prices. In the next few years, there will be six million foreclosed homes.

The Federal government has come up with several incentives to keep people in their homes. One such program is the Neighborhood Stabilization whereby people could modify loans. Initially, the banks had been slow in rectifying loans. But now the pace has picked up. Now more than 650,000 homeowners are on trial and if they succeed in paying the revised mortgage amount, their loans will be modified permanently. However, the primary obstacle in the path of revival is unemployment.

The chief economist at Moody’s com, Mark Zandi says that modification program has to be further revised so that it works better. One options says Zandi, could be that homeowners be allowed to stay in their properties as tenants.

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