Last year, the federal government pushed lenders very hard to rework deals for thousands of mortgage holders. The sudden fall in home prices pushed the entire market to near complete collapse. The feds wanted to do something for the individual homeowner and developed the loan modification program. Under this program, lenders were supposed to re-work mortgages to lower payments, principle, and/or interest rates whenever possible. Many homeowners qualified for reductions of 20 percent or more. That seemed like good news for borrowers and for the economy, as well. However, according to the Office of Thrift Supervision, 40 percent of the borrowers who received a 20 percent reduction in monthly payments were delinquent again in less than a year. This news follows President Obama’s recent chastising of the banking industry for now doing more for homeowners. The high rate of default after the modifications could give the banks justification for proceeding cautiously.

Contributing Problems

One of the main contributing factors to the continued struggle for homeowners is the unemployment rate. When a borrower’s income is cut to near zero because unemployment is now the only income, a 20 percent lower house payment hardly solves all the problems. The strategy would have worked better had the economy recovered as quickly as the feds had hoped. Lingering doubt and sluggish productivity have hampered the economic recovery in all sectors.

Another factor that hampered the effectiveness of the program was the way banks structured the modification process. Most banks devised a trial modification process which required 3 on time payments during the trial period. Many borrowers could not comply with this requirement under the current economic conditions. Additionally, many banks actually raised monthly payments during this trial period. After the 3 month trial period, proof of adequate income was usually the only other criteria which needed to be met to make the modification at the lower monthly payment permanent. It is easy to see how borrowers may have lost their jobs during the intervening trial period and were denied a permanent solution. In fact, of the 760,000 modifications offered, only 31,000 have been made permanent. Approximately the same number has voluntarily dropped out of the program, and the remainder is still pending. The number of homeowners delinquent or in foreclosure remains at a record high 14 percent. These numbers do not show much success for a 75 billion dollar program.

Not as bad as it used to be

The reality is that the modification program is not a complete failure. The impact of what it prevented cannot be directly measured. Had the program not existed at all, no one knows how many people would have lost their homes. In fact, a break out of some of the latest data shows an encouraging trend. The April-June, 2009 analysis by regulators showed 20 percent of borrowers whose loans had been permanently modified had missed 2 out of 3 payments. Although this sounds dire, the number was 35 percent just 3 months earlier. Combined with a slight up-tick in the jobs market, the news could be looked at as promising.

Rather than wait for a break in the recession, many people are getting second jobs to find debt relief. More and more households are resorting to moonlighting to fend off unemployment woes, high expenses, wage cuts, and layoffs. The unemployment rate as 10.2% in October, and full-time employees are averaging a record low 33-hour work week. It’s estimated that 7.5 million people now hold multiple jobs.

14-hour work days

Kelli Conway, a graduate of University of Louisiana, works as a junior publicist by day and a restaurant hostess by night. Her average workday is from 10am to 4pm, and then 5pm to 11pm. She told her daytime boss about her second job when she was hired. “The founder of the company was great about it from the get-go,” she said, “he completely understood that I need two jobs to be able to survive in the city.”

Depressing survey statistics

In a recent Yahoo! Survey, almost 15% of respondents had taken a second job because of the recession. The survey also found that almost 30% of workers feel “less satisfied in their jobs” than they did a year ago and 68% are not making as much as they would like. The most telling statistic is that 42% were concerned about job security and worried they would soon suffer a lay-off or furlough.

Second-job remorse

Experts warn that people should be careful about taking on second job. Andrea Kay, a career consultant in Cincinnati, said, “If the second job detracts from time with your family, will you be creating new problems in your life? Who do you need to have a conversation with about that? How will it affect your health? People can get easily overwhelmed when they take on second roles.”
There are also financial issues to consider in taking on a second job. Commuting, daycare, taxes on extra income, and necessary equipment purchases add up. For example, some call centers employ at-home agents at around $8 an hour, but workers have to pay out-of-pocket for a landline that averages $25 to $30 a month. Employees with small children may also still need some type of babysitting care to handle children while they answer calls. If consumers are taking on a second job to find debt relief, they need to be aware of all additional costs involved and make sure the net earnings are worth it.

What are the motivations?

Career counselors warn that if extra funds are the only motivation for taking on a second job, then other options should be explored first. Kay thinks it may be more advantageous to look for ways to increase pay at a first job: “Is there something you can do on the side — education, training — that would enhance your value so you’ll be paid more at your current job or at another one? Or help you build toward that goal in the future?” Like many experts, Kay believes people should figure out what they’d like to learn and what gets them excited as a part of their career goals, rather than simply running after more money.

Focus on building a better career

The bottom line is that consumers should do what they need to do to handle their budgets wisely. A second job can be a healthy alternative if strategized the right way, but there are other options to handling debt relief. It may be wiser to increase marketability and education because this is the kind of action that will contribute to bettering careers, rather than just temporarily bringing in extra cash.

A restaurant in New Orleans suggests "Foreclose on the Banks." Image from Flickr.

The media and Uncle Sam want us to believe that times are getting better and that we are crawling out of the recession. In fact, there are some economic indicators that the economy is starting to come around.

The last few weeks have provided an increase in consumer spending, a slight decline in the unemployment rate, and the Dow Jones even broke 10,000. However, this may not be enough of a change to get excited yet. There are major economic indicators that are not providing such positive results.

The high rate of foreclosure

The 3rd quarter of 2009 has seen a record number of homes in some stage of foreclosure. The total number of foreclosures for this period was 938,000 compared to 890,000 for the previous three months. It is estimated by RealtyTrac Inc. that the total number of foreclosures for 2009 will exceed the 3.5 million mark. This is up from 2.3 million for 2008.

Gradual increase in total foreclosures

The pattern for all of 2009 has pointed toward an ever increasing number of foreclosures. Each quarter this year has provided even more staggering numbers than the quarter before it. The first quarter ended with 803,489 which was an increase of 9 percent over the last quarter of 2008. This was followed by an increase of 10.5 percent in the summer months and a 5 percent increase the past quarter.

Total foreclosure filings

The indicated foreclosure rates include default papers, auction sale notices and repossessions. These numbers are being partly blamed on the unemployment rate that is at a 26-year high.

Another major factor of this rate is that housing prices have plummeted, and some homeowners are severely under water – meaning they owe more than their homes are worth. These combined factors can remove the incentive for homeowners to keep up with mortgage payments.

The Government’s solution

The Obama administration has implemented steps to try to curtail home foreclosures from plummeting even further out of control. These steps have been aimed at encouraging financial institutions to offer mortgage modifications to those homeowners that are distressed. One of these programs is Hope Now, an organization set up to assist with mortgage modification negotiations.

Obama announced the beginning of October that 500,000 homeowners have been assisted by the government’s mortgage relief effort. While this is certainly a milestone that should be recognized, this help has been provided to 500,000 distressed homeowners out of the over 2.5 million homeowners that have faced foreclosure so far in 2009. The problem is that the rate of new foreclosures exceeds the rate of those that have been assisted. “The sheer scale of the problem is preventing the loan modification programs from having the kind of impact we’d all like” said Rick Sharga, RealtyTrac’s senior vice-president for marketing.

Some areas have seen improvement

While the National numbers are up the rate of foreclosures for some states are actually on a decline. New York has reported a drop in the amount of foreclosures for the third quarter of 2009. The overall numbers of foreclosures for the third quarter in New York were up 19 percent over the same period of the year before, but they are actually down 10 percent from the rate of the previous quarter.

Other states have seen signs of improvement as well. The first quarter of the year, California and Florida had the highest number of foreclosures. As of the third quarter they are ranked third and fourth with Nevada topping off the list.

September’s foreclosure rates are lower

RealtyTrac reported that the number of foreclosures nationwide for September were 344,000 down 4 percent from a month earlier. However, this number is still the third-highest month since the report started in early 2005. It was also the seventh straight month in which more than 300,000 properties filed foreclosure. These numbers may imply that the peak has been reached and the turn-around is slowly beginning. Only the rest of the year will indicate if this trend continues.