Foreclosures Rise as Unemployment Soars

Posted on June 11, 2009
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The US economy is in doldrums. Jobs are vanishing by the day and as people’s pay cheques become slimmer they are unable to pay the mortgage, as a result of which they are not able to retain their properties. Foreclosures for sale are becoming common. Take, for instance, the case of Robert Paradise who lost his job and the new one paid him half of what he was getting earlier. He had no alternative but to stop paying the loan. Paradise has no qualms – he says that he needs the money t pay for the food and electricity. There is no way that he can continue with the mortgage payments, he says.

The above instance is just one among the million such cases in the US where recession and subsequent job loss is playing havoc with the economy. The unemployment rate has hit 8.9 percent nationwide while in Ohio it is 10.2 per cent. This has fuelled a foreclosure crisis that has hit a new high. The crisis had started with the subprime borrowers taking loans for purchasing homes that they could not afford. Now the problem has spilled over to prime borrowers as well. In fact, conventional mortgages now account for a major chunk of foreclosures – almost 29 per cent in the first quarter as compared to 19 per cent last year.

The bankers expect the unemployment to touch the highest point by 2011. Experts agree that foreclosures will decline sometime after that. The economy is in such a poor condition that people with even decent jobs are now having nightmares of their investments disappearing in a whiff. Jeanne Morton, director of community training at Cleveland Housing Network says a major chunk of defaulters were well-offer and never faced a problem of payment before. Crashing real estate prices have only added to their woes. That means they cannot get enough from selling a house to pay their mortgage.

Take for instance, Andrew Pipoly, who wanted to sell his home in Garfield Heights after he lost his job. He was unable to do so even though he brought down the price to $60,000. Incidentally, he had bought the property at $77,900 in 1999. Now Pipoly has given a portion of his house on rent but that too is not enough to pay the mortgage. The problem of foreclosures will stop only when new blood is infused into the sagging economy.

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