Unemployment Plays Big Role In Home ForeclosuresUnemployment 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.