The growing number of jobless people in the country will add to the worsening foreclosure problem, according to economists and bankers.
They said that the rising unemployment rate will overtake subprime loans as the main factor that will drive up the number of foreclosed homes in the country. They pointed out that as more people lose their jobs or reduced their wages, many would default on their mortgage payments and increase the risk of going into foreclosures.
According to economists, foreclosures due to unemployment will be more difficult and complicated to handle and resolve. They predicted that about 1.8 million troubled borrowers would lose their properties to foreclosures before the year ends. The estimate is higher than the 1.4 million foreclosures last year.
Economists also pointed out that the federal government finds it more difficult to help people who lost their jobs than those who are struggling to make their mortgages current. They said that so far, the federal government has pledged billions to its foreclosure prevention programs.
Meanwhile, bankers observed that for the first quarter of this year, the bulk of foreclosure activity shifted from subprime loan borrowers to prime loan borrowers. They said that the shift of foreclosure activity to prime loans indicated that a growing number of jobless people have already fallen into foreclosure.
House Financial Services Committee Chairman Barney Frank proposed allocating $2 billion in federal funds for emergency loans to borrowers who are at risk of foreclosures because they lost their job. He argued that these people need help because they would not be in the current dire financial situation if they have not lost their jobs.
Housing counseling group NeighborWorks said that 65 percent of homeowners who seek counseling cited unemployment or wage reduction as main reason for defaulting on their loans. The figures were higher compared to the 40 percent of homeowners who cited unemployment for their delinquency last year.
Industry analysts said that helping delinquent homeowners due to unemployment is more challenging because they accrue large fees and when they find jobs, often they are low paying which make it difficult for them to make their accounts current.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.