WASHINGTON – Relentlessly rising unemployment is triggering more home foreclosures, threatening the Obama administration’s efforts to end the housing crisis and diminishing hopes the economy will rebound with vigor.
In past recessions, the housing industry helped get the economy back on track. Home builders ramped up production, expecting buyers to take advantage of lower prices and jump into the market. But not this time.
These days, homeowners who got fixed-rate prime mortgages because they had good credit can’t make their payments because they’re out of work. That means even more foreclosures and further declines in home values.
The initial surge in foreclosures in 2007 and 2008 was tied to subprime mortgages issued during the housing boom to people with shaky credit. That crisis has ebbed, but it has been replaced by more traditional foreclosures tied to the recession.
Unemployment stood at 9.5 percent in June and is expected to rise past 10 percent and well into next year. The last time the U.S. economy was mired in a recession with such high unemployment was 1981 and 1982.
But the home foreclosure rate then was less than one-fourth what it is today. Housing wasn’t a drag on the economy, and when the recession ended, the boom was explosive. (The economic recovery of the 1980′s was fueled by Reagan’s tax cuts and a shrinking of Government – a formula we won’t see from this Administration).
No one is expecting a repeat. The real estate market is still saturated with unsold homes and homes that sell below market value because they are in or close to foreclosure.
“It just doesn’t have the makings of a recovery like we saw in the early 1980s,” says Wells Fargo Securities senior economist Mark Vitner, who predicts mortgage delinquencies and foreclosures won’t return to normal levels for three more years.
Almost 4 percent of homeowners with a mortgage are in foreclosure, and 8 percent on top of that are at least a month behind on payments — the highest levels since the Great Depression.
In the last 12 months, 15% of mortgages have had forclosure completed.
Obama’s Trillion Dollar Mortgage Modification Program, which he promised would help 9,000,000 (9 Million), has in fact provided temporary relief to less than 75,000 (Seventy Five Thousand). Many of the 75,000 have, after receiving a modification, now slipped into foreclsoure anyway.
Credit card defaults keep climbing
Default rates in May continue to rise as borrowers struggle with the weak job market.
NEW YORK (CNNMoney.com) — Banks continue to write off credit card debt as consumers hurt by record high unemployment default at an increasing rate.
Regulatory forms filed this week by some of the nation’s largest banks showed default rates on credit cards rose in May. The default rate is a measure of loans that the bank does not expect to be repaid.
“Data from May showed continued signs of stress for card issuers, reflective of worsening unemployment trends and deteriorating macro [economic] conditions,” analysts at Bernstein Research said in a report Tuesday.
Bank of America the nation’s largest bank, said its default rate jumped to 12.5% in May from 10.5% the month before. Other major banks, including Citigroup, JPMorgan Chase and Capital One also reported increases in May default rates.
Filed under: Banking Crisis, Barack Obama, Economic Crisis, Economic Recovery, Economy, Employment, Mortgage Crisis, Mortgage Foreclosures, Mortgage Modification, Unemployment | Tagged: Economic Recovery, Economy, Mortgage Crisis, Mortgage Foreclosures, Obama, Unemployment | 1 Comment »