Foreclosure Pace Hinges on Unemployment

Washington, DC, July 21, 2009--Foreclosure filings were reported on more than 1.5 million properties in the first six months of the year, a 15 percent increase over the same period of last year, according to RealtyTrac.

One in 84 American homes--or 1.19 percent--received a foreclosure filing during the period.

"We talk about green shoots or about things getting worse at a slower rate, but this is one thing that is getting worse month by month," says Patrick Newport, an economist for IHS Global Insight.

The unemployment rate, currentlyf at 9.5 percent, is the key factor in the rise of home foreclosures, says Celia Chen, an economist at Moody's Economy.com.

"Employers continue to shed jobs, and that makes it difficult for even people with good credit who were doing fine to keep up with their mortgage payment," Chen says.

Federal bank regulators said that prime loans, which represented two thirds of all mortgages in the portfolio, experienced the highest percentage increase in serious delinquencies, climbing by more than 20 percent from the prior quarter to 2.9 percent of prime mortgages.

Plunging home values are compounding the problem. Although the pace of decline moderated slightly from the previous month, home prices in 20 major metro areas dropped 18.1 percent in April from a year earlier.

Falling home values have dragged more than 20 percent of American homeowners "underwater"--meaning they owe more on their mortgages than the property is worth--as of the first quarter.

The price declines have also evaporated much of a homeowner's financial incentive for paying their mortgage bill, Chen says.

The end of foreclosure moratoriums has also caused foreclosures to keep rising.

moratoriums-including those of Fannie Mae and Freddie Mac, which were lifted in late March-also contributed to the rise in foreclosures during the period, Chen says. As these efforts unwound, lenders and servicers put additional properties into their foreclosure pipelines, she says.

The federal plan to help as many as 4 million troubled loans has made offers to just 325,000 homeowners, according to Bloomberg news. Chen says the program is having an impact for certain individual borrowers, but the efforts--at least so far--have not put much of a dent into the national foreclosure epidemic. "The program is making progress. It's just that there are a large number of distressed borrowers out there," she says.

Newport expects foreclosure rates to creep higher for the next year or so. "It's going to keep on getting worse until the unemployment rate peaks, which we think will happen in about the middle of next year," he says.