Unemployment Plays Big Role In Home Foreclosures

Unemployment may play a big factor in home defaults, says a report from the Boston Federal Reserve that shows unemployment is large driver of missed mortgage payments. This brings into question the viability of President Barack Obama's plan to modify loans and its ability to keep more homes from going into foreclosure.

The report raises questions about the plan to stem foreclosures by modifying loans. The report shows borrowers are more likely to default on their payments because they have lost their jobs or because the price of their homes has plummeted than because of tough terms on their mortgages.

The researchers who wrote the report, Boston Federal Reserve economists Christopher Foote and Paul Willen, as well as Atlanta Fed economist Kristopher Gerardi and Lorenz Goette, a professor at the University of Geneva, say the policies that help homeowners overcome setbacks like job loss may be more effective.

This is opposite to the White House plan announced in February that would give up to 9 million families the ability to refinance their mortgages. The Obama administration has made loan modifications a central plank of its efforts to tackle the housing crisis.

The researchers state that rather than changing the terms of unaffordable mortgages, the government could replace part of a homeowner's lost income from job loss with loans or grants, and help those that can't afford to stay in the house because of long term unemployment become renters.

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About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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