It's Lost Jobs, Not Mortgage Payments

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.

Comments

[wavelength:]

Excellent article. Even better than swapping the foreclosure subsidy for a job loss subsidy would be to tackle some root causes of US unemployment and capital flight. Jobs are being lost because US business taxes are either the highest or second highest in the developed world, depending on what state one lives in. There will continue to be an unemployment and investment crisis in America as long as small business is punished instead of encouraged.

Apr 14 10:13 AM

[rm:]

[tap another resource of money to help in the housing-mortgage, Immigration. ]

So if the current owner cannot make the payment because he lost his job, how in the hell is a new immigrant supposed to make the payment?

Or will the immigrant be bringing his job with him?

Apr 14 10:15 AM

[rm:]

"Welcome to America."

Don't forget: BYOJ!

Apr 14 10:15 AM

[TeresaE:]

So, destroy American's credit by doubling their payments and then allowing the banks to charge usurious interest.

Create a slew of liar loans and sign up the clueless.

Build McMansions and sell for top dollar.

Yank credit away to the indebted, then watch panic set in.

Import a bunch of lower paid foreigners, to gift more record profits to the large companies, drive down wages and buy our houses and bankrupted businesses for pennies on the dollar.

What world do you live in? This isn't going to end well for the American way of life.




On Apr 14 09:38 AM 1,000,000 Squared wrote:

> If the issue emptying houses (as an example) instead of having the
> Fed provide liquidity along with the Federal Goverment through the
> Multiple Plans (Bush-Bama 1.5 combined Trillion) or artificial money
> making and job cration, tap another resource of money to help in
> the housing-mortgage, Immigration.
>
> Part of the problem is/are empty homes without enough "buyers" or
> people without work. Get more buyers and one way of doing so is
> by opening up (not a flood but a flow) of bringing in people through
> special path's to Citizenship who can afford homes. Skip the tedious
> process to those who are willing to write a check for $1,000,000
> and give them Citizenship (with vesting parameters, no felonies in
> 10 years, etc. A million entrants into the US with a $1,000,000 would
> provide not just an immediate injection in liquidity to the Federal
> Government's deficit, it should also provide an opportunity for all
> those empty (to be) homes to be sold, occupied with the new citizens.
> The Chinese alone are sitting on something like 2.3 Triliion US dollars
> due to the "Wal-mart" effect of our consumers.
>
> The fact of the matter is America is the "ultimate gated community"
> in terms of people trying to get in. It is in fact American Dollars
> that are being funneled out of the country either through oil transfers
> to the middle east or through the walmart effect of industry. Trillions
> are sitting in the sidelines in Asia (China & India) or the Middle
> East and even in Russia (the recent oil boom and gas shipments to
> EU). A way of bringing those dollars back is to bring them along
> with the people.
>
> The problem is not "too much" immigration, its not enough of the
> right immigration. Fill the empty homes, refund the banks and financial
> institutions, and get the economy back on track through high income,
> high talented, risk taking, willing supporters of American values
> who will write over the check. Give the 1,000,000 Squared plan a
> chance to work.

Apr 14 10:16 AM

[Allan Frain:]

A reminder of what is going on--

Banks made loans recklessly to the clearly unqualified. The unqualified are losing their houses and the reckless lenders their payments (which they leveraged to the hilt and sold to the unwary).

The government is bailing out BOTH parties at the expense of the nonparticipants.

Apr 14 10:18 AM

[TeresaE:]

Nope he'll find a job, because he won't be locked into an overpriced mortgage and tens of thousands in credit/revolving debt.

So he can work for pennies on the dollar AND he will be able to buy our former homes for pennies too.

Great plan for everyone except the middle class citizens.

But we don't count anymore and are expendable.


On Apr 14 10:15 AM rm wrote:

> [tap another resource of money to help in the housing-mortgage, Immigration.
> ]
>
> So if the current owner cannot make the payment because he lost his
> job, how in the hell is a new immigrant supposed to make the payment?
>
>
> Or will the immigrant be bringing his job with him?

Apr 14 10:18 AM

[drbob66:]

I can. I sold mine in 2006 and retired...renting ever since, and waiting for prices to get attractive. I WILL be a buyer when we get there. I'm even considering buying a distressed property and becoming a landlord...which, I suspect, is what some other investors are doing now with foreclosed properties. It'll take TIME to work out, but eventually it will.




On Apr 14 10:05 AM HardwoodFlooring wrote:

> Agree with this post. Who can live in a house, much less buy one,
> when you don't have a job.
>
> It's trying.

Apr 14 10:18 AM

[HardwoodFlo...:]

Here's an article from WSJ about a month ago. Surely fuel for debate regardign Immigrants and housing:

online.wsj.com/article...

Apr 14 10:20 AM

[TeresaE:]

The government created this mess. Clinton and open borders for WalMart, repeal of Glass-Steagall, Bush for liar loans and 2005 assorted financial f*ing acts that gifted the banks more power and less regulations.

Now we think the government can bail us out. What public educated idiots the majority of us are.


On Apr 14 10:18 AM Allan Frain wrote:

> A reminder of what is going on--
>
> Banks made loans recklessly to the clearly unqualified. The unqualified
> are losing their houses and the reckless lenders their payments (which
> they leveraged to the hilt and sold to the unwary).
>
> The government is bailing out BOTH parties at the expense of the
> nonparticipants.

Apr 14 10:43 AM

[Ricard:]

"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...

This is called a HELOC or a cash advance from a credit card...


and help those whose predicament is more permanent become renters."

This is called foreclosure.

Why is the government involved again?

Apr 14 01:19 PM

[The Geoffster:]

Huey Long promised a chicken in every pot. Under Pres. Obama, it's a Cadillac in every driveway. I want my color TV.

Apr 14 01:33 PM

[beenburnedt...:]

Lost jobs will accelerate later this year when the only employment sector that is holding it own now, government, starts to decline. Government jobs will decline by 5 to 15% across the country because of state, county, city, and local government cuts in services. Making it harder to own a home.

When talking to Obama supporters, who are easy to spot when their mouths first open, they are optimistic about a quick and fairly painless recovery, and the steps taken by Geithner, Bernanke, and crew have been sound. However, long-time Republicans have an equal and opposite viewpoint but they miss the real pressing issues--that until we begin to balance our spending deficits and allow markets to correct themselves we are setting ourselves up for long term failure of the highest degree--something that Republicans have not been able to do.

I hope the Obama administration does not begin purchasing more and more of our bedroom property in order to stabilize pricing and establish residences for the so-called "dead beats" who don't have a job. When times get really tough we need to turn to our own families for support. Its times like these that will re-focus America and help get it back on its feet again.

Apr 14 03:58 PM

[Jason Rines...:]

You are correct on both of your comments. It does end well, it just is bloody in-between. The appropriate imagery is that of the Soviet Union and waiting in line for basic commodities and hopefully a nice chunk of meat for the day. As the commie workers used to say 'they pretend to pay us so we pretend to work'. It was extraordinarily mean spirited what the bankers and politicians did. I do not believe the American people will be so forgiving to these events.


On Apr 14 10:18 AM TeresaE wrote:

> Nope he'll find a job, because he won't be locked into an overpriced
> mortgage and tens of thousands in credit/revolving debt.
>
> So he can work for pennies on the dollar AND he will be able to buy
> our former homes for pennies too.
>
> Great plan for everyone except the middle class citizens.
>
> But we don't count anymore and are expendable.

Apr 14 06:25 PM

[Michael Let...:]

First of all I would like to explain the Bailout plan to this very untrusting American public. The understanding is that big Government wants to use tax payer’s money to bailout the Big Cats on Wall Street. This is wrong. Similar to the Stockholm government bailout of the Swedish banks in 1992, the American government will take an equity stake in the banks the plan to help. In some form they will purchase preferred shares of these banks while injecting liquidity to the banks through these purchases. The government will have part ownership and gain interest off the dividends of the preferred shares. So while the banks pay back the government through share buybacks the government will gain income that they can inject back into the economy.
Also with the housing crisis, the government has a couple of options. The first is to take over the loans of the troubled homeowners and negotiate new loans to be paid back. We all know that the US government has no interest in getting into the mortgage business. The second is similar to the share purchasing plan I mentioned earlier, allowing the banks to use the funds to restructure the loans.
I understand the negative public sentiment towards our government with their crappy track record and all, but we always seem to forget our own guilt in all of this. Everyone loves to separate Wall Street from Main Street and put all the blame on the big shots at the Wall Street houses. Should there have been stricter regulations on the credit ratings and available credit? Your dame right! But let’s not forget the decisions that we made. For the people who purchases more home than they could afford, shame on you. And all the speculators counting on home prices to keep rising. Please!
If you look back to most of the crisis this nation has experienced you will see that we as an American people do it to ourselves. Every time we over extend or we buy into companies that weren’t even making money (anyone remember the tech bust), we expect to be bailed out.
While living our lives on Main Street we put our future in the hands of Wall Street through our investments in our 401k’s and 403b’s, so don’t fool your selves in thinking that the two worlds aren’t deeply connected. They are.


GOOD LUCK IN THE FUTURE
Sincerely
Michael Letizia Individual Investor

Apr 14 07:13 PM

[Duderonomy:]

It's more like these individuals who are losing their homes are the ones who could not afford them anyways. There is no coincidence that the states with the highest foreclosure rates are Florida, California, Nevada, and Arizona. Many of these properties were bought as speculation thinking that the value of the property would rise. The only good news about the bust of the housing market is that prices have declined low enough that an average family can now afford a house.

Apr 14 10:35 PM

[Duderonomy:]

Phenominal timing and very intelligent move. No doubt you will make out like a bandit with interest rates at their lowest levels in decades.


On Apr 14 10:18 AM drbob66 wrote:

> I can. I sold mine in 2006 and retired...renting ever since, and
> waiting for prices to get attractive. I WILL be a buyer when we get
> there. I'm even considering buying a distressed property and becoming
> a landlord...which, I suspect, is what some other investors are doing
> now with foreclosed properties. It'll take TIME to work out, but
> eventually it will.
>
>

Apr 14 10:39 PM

[Fisk:]

This is wet dreams.

US already has an "immigrant investor" program, allowing those investing 1 M (and less if in designated "recession" areas) to immediately get a green card. The subscription has been laughingly low even in aty the start in late 1990-s, and decreased
to virtually nothing now. Most wealthy pepople of the world have ZERO interest in immigrating to the US and subjecting themselves to high taxation on WORLDWIDE income. The quality of life available to smb. with 5 K (not to mention 25 K) monthly income in Thailand, Costa Rica, and dozens of other nations is ORDERS of MAGNITUDE higher than in the US.


On Apr 14 10:02 AM Trane250 wrote:

>

Apr 15 02:59 AM

[john1:]

Just more unpatriotic negativity from liberals who hate America, Ronald Reagan, the honest hardworking business leaders of America, and the troops.

Apr 15 05:35 PM

[kevin11:]

You are absolutely correct. Without a job, it doesn't matter how many loan modifications you do, you are still going to wind up losing your home. It has been disappointing to see so much of the stimulus earmarked for things that will not lead to long-term job creation and that is the key: long-term, self-sustaining employment. And without it, all else will be for naught.

Apr 16 04:27 AM

[HardwoodFlo...:]

Still, we are talking about fractions of fractions here.

50% of the homeonwers in this country don't ahve a mortgage
of the other 50%- 75% have been in their homes for 10 years or more

The new home owners are going thorugh full doc FHA (read stringent) qualifications.

While joblessness will increase foreclosures, or at least keep them where they are-elevated, don't expect the number to go over 3% of total homeowners. Again, we are talking about fractions of fractions so it takes a lot to move the needle. Home forclosures now are 1 in 156 homes- pretty near historical levels.

Apr 17 12:40 PM