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Foreclosures on the rise

Despite credit cards, borrowing money and government aid, many homeowners lost their homes to foreclosure. A recent survey done by the Mortgage Bankers Association showed that one in every seven home loans in the US were either past due or in foreclosure. That is the highest delinquency rate since 1972, when the survey first began. Jay Brinkman, the MBA’s chief economist said, “Despite the recession ending in midsummer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures, because mortgages are paid with paychecks, not percentage-point increases in GDP.”

Signs of the times

It may seem contradictory to an improving market that foreclosure numbers are up, but a closer look at what is happening shows that it is appropriate. Here are some reasons why:

1) A deeper look at the economy. The MBA did research on what really started the economic downturn in terms of housing and its beginning was the subprime mortgage loan crisis. Almost everyone was able to get a loan back in 2006 and 2007. When the unemployment rate began to climb, the labor market pushed hard against housing industry. Brinkman said, “A job loss, after all, can prevent even borrowers with sound credit histories from paying the mortgage.” Subprime mortgage holders started the problem, but when consumers with good credit started losing jobs, foreclosures began rising even quicker.

2) Geographic locales. It’s startling to see how certain areas more than others, have been affected by foreclosure saturation. For example, Nevada, Arizona, California and Florida are the hardest hit states when it comes to depressed properties. Studies have shown that Florida for example, has a delinquency rate of 25%, which means one in every four homes is either past due or in foreclosure.

3) Huge inventories of depressed homes. Although there are signs of stability on the horizon, the National Association of Realtors still notes a huge inventory of available properties. Michelle Meyer, economist for Barclays Capital, said, “We continue to believe that nearly 6 million foreclosed homes will enter the market over the next three years, which will keep inventory of existing homes elevated. Foreclosures remain the biggest hurdle to the housing recovery.” Consumers who are borrowing money to purchase homes may be surprised at how vast their home options are for years to come.

4) The unemployment rate. The bottom line of the foreclosure crisis is that mortgage delinquencies are not expected to level off until the labor market is cured. Experts are predicting that 2010 will still be a time for high unemployment, in particular at the beginning of the year. Meyer added, “The delinquency rate is going to stay up there for a while because the job market is going to be really weak for a while.” It may take until mid- to late-2010 before true signs of a drop in foreclosures are evident.

Despite the signs

Despite signs of stabilization, experts warn that the foreclosure crisis is far from over. When it comes to true economic recovery, consumers have to be concerned with the big picture. That includes everything from the number of homes on the market, new methods for borrowing money, the unemployment rate and geographic recovery of the hardest hit economies. It will take time for all of these to show true signs of economic turnaround.

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Payday loans applications are flourishing as medical costs continue to weigh down Americans.  Currently there are millions of people seeking aid from government programs.  These programs can be confusing, however, and many people are being rejected for innocuous reasons such as location, rather than need.   Government aid comes in the form of health care, housing aid, and food stamps. But each one comes with its own set of rules and regulations to be eligible, and truly needy people can get caught in the red-tape.

Beverly Johnson of Kosciusko, Mississippi lost her job at a Bible college. When she went to apply for unemployment, she was told that as an employee of a religious school she was ineligible.  “That was a shock,” she said.  Most Americans believe that unemployment is there if they are let go but there are underlying rules with every government program.

Because there is so much fine-print when it comes to getting government assistance, payday loans are filling the gap.  When people need money, they look to payday loans as a reliable option because other options are so uncertain.  Martin Summerstein of Miami, Florida stated, “We use payday loans because they are available to us. You can’t count on the government, because one day help is there and the next it isn’t.”

Studies show

The New York Times did a study of state enrollment for six federal assistance programs and found a huge amount of disparity between them.  In California, only 50 percent of people who need food stamps get them, whereas in Missouri almost 98 percent of people get them.  In South Dakota, 19 percent of unemployed people get unemployment benefits, while Idaho gives benefits to 67 percent of its out of work citizens.

Political scientist at Harvard Theda Skocpol stated, “The system for helping Americans in need is very fragmented, and it confuses everyone. Some people are covered, and some people are not, even though they look like they’re in very similar circumstances,” says the New York Times.

The critics

The stimulus package has about $100 billion in safety net provisions but each state is able to decide whether or not to take advantage of it.  A few governors believe that to increase unemployment benefits would increase taxes on businesses and cut down on new job creation.  They rejected the assistance.

Some critics believe that this extra fund is detrimental.  They cited that payday loans and easily available federal aid can cause people to mismanage their budgets consistently.  “If people have options, they won’t be forced to rework their budgets and cut back where they need to. They can become dependent on extra money instead of being responsible.”  Stuart Butler of the Heritage Foundation believes that added government aid could also discourage people from seeking more education and better paying jobs.

Much-needed reform

In the end, President Obama has a lot to sort through.  His team has to react to the crisis and find ways of including needy people in government aid programs, without driving the economy deeper into a recession.

Shiela Zedlewski, of the Urban Institute, said “We have people (receiving all benefits) but we have far more people who get nothing. … A significant group remains outside the safety net.”  In the meantime, people are trying their best to use payday loans, family assistance and the government programs they are eligible for to stay afloat.  Hopefully, the president will be able to include help for everyone based on need and not on whether they find their way through red-tape.

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