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Defaults, Unemployment Fuel Foreclosure Homes Rate Increase

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By : John Cutts    99 or more times read
Once again evidence of the link between foreclosure homes and unemployment is felt in some states, including Georgia, Louisiana, Texas and New York.

Foreclosure homes in these four states are fueled by an increase in the number of homeowners who defaulted on their mortgages because of the deepening recession and increasing unemployment.

Nationwide, an estimated 48 percent of distressed homeowners who took out adjustable-rate mortgage loans have defaulted on their monthly payments or in some kind of foreclosure proceedings.

According to the Mortgage Bankers Association data, about 5.4 million or 12 percent of distressed homeowners were a month due on their mortgage payments or in some kind of foreclosure process in the last quarter of 2008, reflecting a 10 percent increase from the third quarter of previous year and 8 percent rise from 2007.

While the flood of foreclosure homes in the country was driven by careless lending practices in California, Florida and Nevada, new trends are showing that unemployment is fast creeping up as the major factor pushing the foreclosure crisis to its peak.

The development bodes ill to President Barack Obama’s $75 million foreclosure prevention plan which aims to modify loans or offer refinancing to about 9 million distressed homeowners to provide affordable payment terms.

However, unemployed owners of foreclosure homes will have difficulty qualifying for the program because one of the requirements for modifying a loan is the borrower’s capability to make payments. But how could the borrower make payments if he is unemployed?

The Department of Labor reported that unemployment claims totaled 639,000 while the Department of Commerce said that factory orders dropped for six consecutive months.

High Frequency Economics chief economist Ian Shepherdson said that the labor market is in a dire situation where employers are letting go of their workers at frightening speed, with no sign of slacking off.

Mortgage Bankers chief economist Jay Brinkmann noted that unemployment rate increased among homeowners with college degrees or technical training, have fixed-rate loans and owned properties.

The only positive development in the current housing crisis is that the turbulence brought about by adjustable rate mortgage appears to be subsiding as the 30-day loan delinquency rate continues its slide downward and is currently at its lowest point since it created a flood of foreclosure homes in 2007.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.

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