Unemployment Spike Compounds Foreclosure Crisis
The country's growing unemployment is overtaking subprime mortgages as the main driver of foreclosures, according to bankers and economists, threatening to send even higher the number of borrowers who will lose their homes and making the foreclosure crisis far more complicated to unwind.</br></br>Economists estimate that 1.8 million borrowers will lose their homes this year, up from 1.4 million last year, according to Moody's Economy.com. And the government, which has already committed billions of dollars to foreclosure-prevention efforts, has found it far more difficult to help people who have lost their paychecks than those whose mortgage payments became unaffordable because of an interest-rate increase.</br></br>"It's a much harder nut to crack, unemployment," said Mark A. Calabria, director of financial regulation studies at the Cato Institute. "It's much easier to bash lenders than to create jobs."</br></br>During the first three months of this year, the largest share of foreclosures shifted from subprime loans to prime loans, according to the Mortgage Bankers Association. The change to prime loans -- traditionally considered safer -- reflects the growing numbers of unemployed who are being caught up in the foreclosure process, economists say.</br></br>Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has proposed using $2 billion in government rescue funding to provide emergency loans to these borrowers. "We are going to be seeing more foreclosures because of prolonged unemployment," he said. "These are people who weren't in trouble and wouldn't be in trouble if they hadn't lost their job."