Before I began writing this column, I scanned the headlines of the day's news, and I found myself numb over the latest unemployment data. An Associated Press report found that U.S. employers cut at least 2.4 million people from their payrolls last year, which gave 2008 the unwelcome distinction of having the worst year of job losses since 1945, when approximately 2.8 million jobs were lost. Furthermore, the national unemployment rate will be at its highest rate in 15.5 years.
I am citing this awful news because it should give mortgage bankers reason to consider how they are handling foreclosures. In a report issued last month, Freddie Mac stated the primary cause of foreclosures in the first half of 2008 was unemployment. Nearly half of all 90-day delinquencies were caused by borrowers who found themselves out of work.
In view of the rising unemployment numbers and the potential for even higher levels of unemployment this year, the mortgage banking industry is going to face a major quandry. No one wants to foreclose on properties, but not many mortgage bankers are appreciative of the concept of having a moratorium on foreclosures.
The government-sponsored enterprises and a few state governments issued temporary freezes on foreclosures during the latter part of 2008, but those were stopgap measures that were used to buy time. It has become clear that time is not an ally to mortgage bankers in this precarious economy.
The industry and the state and federal governments will need to face potentially harsh choices as the year progresses. It is difficult to imagine the unemployment figures are doing an abrupt reversal. Even President-elect Obama is making it clear that the economy will not regain its health in the near future – the long haul of 2009 is not going to be pleasant.
Having an extended government-imposed moratorium on foreclosures will not be welcome by most mortgage bankers. But this may be the most obvious course of action if originators and servicers do not take the current employment statistics into consideration. At the moment, an estimated 4.3 million Americans are collecting unemployment benefits – and as anyone who has ever been unemployed will attest, no one can survive in today's U.S. solely on those benefits.
Rather than have an across-the-board moratorium imposed on the industry, it might make more sense if lenders reconfigured their internal operations to recognize the unemployment crisis and to determine whether delinquent homeowners have become victims of occupational circumstance. After all, there is a huge difference between responsible borrowers who suddenly find themselves without work and reckless people who borrowed beyond their means.
Not all foreclosures are linked to unemployment, of course, but it would make sense if new solutions could be created and presented to those who are out of work and are having difficulty finding an adequate replacement job.
This could require a time-consuming case-by-case workout, and that could add greater pressure to lenders who are finding their borrowers are unable to make monthly mortgage payments. I am certain that many lenders will not approve of that idea, but we need to realize that difficult times require the proverbial outside-of-the-box thinking – and I would think it is more acceptable than a government-imposed moratorium that freezes all foreclosures.
But that is just my idea. What do you think of this situation, and what ideas do you have to help address the crisis? Please send your comments to me, and I will be glad to share them in an upcoming column.
– Phil Hall, editor, Secondary Marketing Executive.
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