August 17, 2009

Joblessness spurs foreclosure fears

Worsening joblessness is taking the place of subprime mortgages as the major cause of U.S. foreclosures, financial industry professionals say.

Citing Mortgage Bankers Association figures, The Washington Post reported Monday that the largest share of foreclosures during the first quarter of 2009 shifted from subprime loans to prime loans -- indicating larger numbers of unemployed Americans going to foreclosure. Bankers and economists are concerned growing unemployment will further complicate efforts to unwind the foreclosure crisis, the newspaper said.

Citing a report on Moody's, the newspaper said an estimated 1.8 million homeowners will lose their homes in 2009 -- up from 1.4 million in 2008. At the same time, the federal government has encountered more difficulty helping people keep their homes after job loss than in the case of mortgage payments shooting up due to higher interest rates.

Mark Calabria, director of financial regulation studies at the Cato Institute, a libertarian think tank based in Washington, told the newspaper (foreclosures caused by) unemployment are a much harder nut to crack.

It's much easier to bash lenders than to create jobs, he said.