Wikinvest Wire

It's the lost jobs, not the mortgage payments

Monday, April 13, 2009

Filed under the category "no easy solutions to the foreclosure crisis" comes a report at CNN/Money about how the recent White House plan to rescue homeowners by lowering their mortgage payments may be a bit wide of the mark given all the recent job losses.

Unemployment is a bigger reason for missed mortgage payments than high interest rates, according to a study from the Boston Federal Reserve that raises questions about President Obama's plan to stem foreclosures by modifying loans.

Borrowers are more likely to default on their payments because they have lost their jobs or because the price of their homes has plummeted than because of tough terms on their mortgages, the study found.
Normally, foreclosures are an after-effect of recessions - people lose their jobs, then they lose their homes because they can't make their mortgage payments. It seems as though we're now just entering that phase after the loss of 3.7 million jobs over just the last six months.

What's the solution? Naturally, it's the same solution that has been offered for nearly every phase of the financial crisis - more money from the government.

Since the government owns or guarantees most of the mortgages in the U.S. these days, it's more than a little funny that one agency in Washington D.C. would be lending you money so you can make a payment that winds up in another Washington D.C. office.
The economists suggest that the government could instead replace part of an individual homeowner's lost income from a job loss through loans and grants and help those whose predicament is more permanent become renters.


Anonymous said...

This enticing of first time buyers is really starting to bother me. By any reasonable measure, home prices still have another 10 percent or more to drop, wiping out whatever downpayment is put up and probably making the government subsidy vanish. An excellent example of good money thrown after bad.

bevo said...

Really? People get paid to do this type of research? Man, I need an easy gig like the Boston Federal Reserve.

Let's recap, people who no longer have the means to make a mortgage are likely to default on their mortgage.

Wow. This news is really shocking!

Greg Hall said...

Bevo...your sense of humor is awesome;-) I totally cracked up. This [rather innanely obvious]report also suggests that the Geithner-Summers Plan is unlikely to work because its focus is aimed at reducing rates by recapital-izing insolvent banks. People without jobs don't tend to borrow or buy much. What good is a bank laden with cash in that circumstance?

Anonymous said...

I don't think it's so obvious. I'd love to see the breakdown into categories by region.

Because while I might easily believe that the main reason people can't afford their homes in the midwest is job loss, I think there are still a lot of crazy ARMs adjusting here in California. People bought houses they couldn't afford period. Of course we also have 10% unemployment here in CA now as well.

Michael said...

3.7 million lost jobs? I though the number was closer to 6 million.

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Professions said...

No doubt, what a mess he made. Things would be a lot better if the average salary would just go up a bit less and maybe more jobs could be created. Things need to get real again.

Victoria Mortgage Brokers said...

This is pretty shocking. Thanks for sharing this post. What a mess made!

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