Work & Foreclosures: Losing Jobs Means Losing Homes

Until the past few years foreclosures were rare. In fact, the Mortgage Bankers Association reports that in March 2005 just .44 percent of all loans were in the foreclosure process, a figure which grew almost seven-fold to 2.97 percent as of December 2008.

For 2008, reports RealtyTrac.com, 2,330,483 U.S. properties received one or more foreclosure notices, typically default notices, auction sale notices and bank repossessions. That’s an 81 percent increase over 2007 — and a 225 percent spurt since 2006.

For all the news about foreclosures, foreclosure prevention and loan modification programs, a basic reality is that when people lose their jobs their foreclosure alternatives narrow and in too many cases drop to zero.

As an example, look at the latest foreclosure modification plan. The Obama program is vastly better than what we have seen before, but to get help you have to qualify and one benchmark concerns income. Under the plan, says the Treasury Department, “the lender will have to first reduce interest rates on mortgages to a specified affordability level.” What is that level? The borrower’s monthly mortgage payment should be no greater than 38% of his or her income. Government help can then lower monthly payments to 31 percent of an individual’s gross monthly income.

The 38 percent and 31 percent standards will potentially help many people, but it won’t help those without work. The standard assumes that homeowners are employed or self-employed, that they have a stream of income.

But for growing numbers of Americans that’s not the case. The Bureau of Labor Statistics reports that since the start of the recession in December 2007 some 3.6 million people have lost their jobs and about one-half of this decline occurred in the past three months.

There’s more: The BLS says that as of January we had 11.6 million people who were officially unemployed. In addition, we had 7.8 million “involuntary part-time” workers, folks who couldn’t get full-time work and another 2.1 million were “marginally attached to the labor force” — these are individuals who wanted work and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 734,000 “discouraged workers,” people not currently looking for work because they believe no jobs are available for them.

So rather than 11.6 million people looking for work the real number is much bigger, say about 21.5 million. In a country with 154.6 million people in the labor force we’re talking about a very large percentage of the population which is either unemployed or underemployed.

What do job losses this mean in terms of foreclosures, local home values, tax collections and related issues? Think of unemployment numbers as a “leading indicator,” a hint of things to come unless we put more people back to work.

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