"Keep in mind that most of the foreclosures we saw a year ago [occurred] when the unemployment rate was 5 percent, so really the first wave of foreclosures were driven by subprime loans [and] resetting loans," says Guy Cecala, publisher of Inside Mortgage Finance. Today, however, a national unemployment rate of nearly 10 percent is triggering "a whole new wave" of homeowners going into foreclosures on account of job losses, Cecala says.
SHOOT: When people lose their jobs there's an initial buffer period, where to the outsider nothing appears to change for a few months and weeks. This is the period where they go their savings, perhaps their pensions, use up some of the credit available on their credit cards. During this time they look for alternate sources of income, and in this economy, increasingly, fail to find any. After that, they begin to default. On insurance, car payments, health insurance and of course, their mortgages. The full effect has yet to be felt, and the systemic response to that has yet to transmit into the system. Hence talk of a 'recovery' is lunacy. The question is how steep the recession, how long, and I think we can start using the D word. D for 'Depression'.
SHOOT: When people lose their jobs there's an initial buffer period, where to the outsider nothing appears to change for a few months and weeks. This is the period where they go their savings, perhaps their pensions, use up some of the credit available on their credit cards. During this time they look for alternate sources of income, and in this economy, increasingly, fail to find any. After that, they begin to default. On insurance, car payments, health insurance and of course, their mortgages. The full effect has yet to be felt, and the systemic response to that has yet to transmit into the system. Hence talk of a 'recovery' is lunacy. The question is how steep the recession, how long, and I think we can start using the D word. D for 'Depression'.
Cecala says the unemployment rate will have to peak before we can expect to see a meaningful and sustainable reduction in the number of home foreclosures. In its 2010 economic forecast, the MBA projected that the unemployment rate would peak at 10.2 percent in the second quarter of next year. For that reason, Cecala expects home foreclosures to let up sometime in the middle of 2010. "We certainly have enough bad loans in the system . . . to keep foreclosures at record levels going through the first half of next year," he says. "So maybe a year from now we will see some letup, but we are not sure." "The foreclosure crisis has moved beyond subprime mortgages and into the prime mortgage market. It increasingly appears that [the program] is targeted at the housing crisis as it existed six months ago, rather than as it exists right now."
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