Loan Modification

Long-term unemployment woes increasing rate prime mortgage foreclosures

By Constantine von Hoffman

As the unemployment rate continues to grow it is hitting an increasing number of people who had prime mortgages. The result is a huge increase in foreclosures among primes. In the first three months of the year, prime fixed-rate loans accounted for nearly half of the increase in foreclosure proceedings, according to the Mortgage Bankers Association. “At the end of the fourth quarter, 2.4% of prime mortgages were seriously delinquent, more than double the 1.1% at the end of March 2008, according to a report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision.”

Some folks seem to believe that the unemployment rate will soon peak at 10%.

The fact that the unemployment rate jumped to 9.4% from 8.9% is ignored as a ?baked in the cake? event as everyone expects this number to breach 10.0% in the very near future. The pace of employment declines is what matters and other indicators buried in this report, along with other recent statistics, suggest the worst of the declines are behind us.

This prediction  based on the idea that “the worst of the declines [in employment] are behind us.” Another reading of the numbers says that we will be seeing the unemployment rate increase at a slower rate — which is a far cry from peaking. This leaves out two very scary facts.

1. This is the fake unemployment rate and is based just on unemployment claims. The real unemployment rate can be found in the U6 numbers which counts people who are now “under-employed” or who have given up looking. It is currently at 16.4 percent and, as Mad Mike the Biologist points out, it could easily hit 20%.
2. Even more troubling is the long term unemployment rate.  “The government says that 4.5 percent of the work force has been out of work for 15 weeks or more. The worst previously seen ? at least since 1948, when the government began counting people that way ? was 4.2 percent, in December 1982.”

Put those together and you get the actual employment picture. More people are taking longer to find new jobs and many are having to take part-time jobs. This skews the stats and lets people crow about an improving jobs market. Those crowing are clearly not among those who are looking.

As Dirk van Dijk of Zacks Investment Research puts it:

“The pig is moving through the python, as people laid off earlier are not finding new jobs. The year-over-year change in long-term unemployed is like nothing this country has ever experienced before, and the year-over-year changes in the next two groups, the 15 to 26 week unemployed, and the 5 to 14 week unemployed are both at new records by a comfortable margin.“

People earning less money are going to be less likely to pay those once prime mortgages adding to the number of foreclosures further decreasing home values which makes consumers even less likely to spend which means further decreases in demand which means further layoffs.  Please point out if I have missed something here. Please.

Meanwhile the Obama administration continues the Bush policy of seeking to rescue the people and firms who got us into this mess in the first place. Go team go!

Constantine von Hoffman is a veteran business journalist and social media consultant. He write the blog CollateralDamage, a satirical look at marketing and business.

Full post as published by Blown Mortgage on June 09, 2009 (boomark / email).