Foreclosures rise along with layoffs

By Alan Zibel

Associated Press

With the recession throwing thousands of people out of work daily, more than 13 percent of American homeowners with a mortgage have fallen behind on their payments or are in foreclosure.

The record-high numbers released Thursday by the Mortgage Bankers Association are being driven by borrowers with traditional fixed-rate mortgages, rather than the shady subprime loans with adjustable rates that kicked off the mortgage crisis. As of June, more than 4 percent of all borrowers were in foreclosure, while about 9 percent had missed at least one payment.

And the layoffs keep coming. Lockheed Martin Corp. said this week it’s handing out about 800 pink slips in its space systems division, and audio conferencing company Polycom Inc. said it will cut about 80 positions.

While the recession, measured by the nation’s total economic output, is likely over, most economists expect layoffs and foreclosures to keep rising for many months as companies remain in cost-cutting mode.

“Their confidence has been shattered,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight. “They are going to be very conservative. They don’t want to be blindsided by a false dawn economy.”

Nee Salam, 56, lost his engineering job at an automotive electronics supplier south of Atlanta more than a year ago.

At the time, he said, “I was thinking the job market was going to change right away.”

Since then, he’s been working as a consultant, earning less than half his old salary of $115,000. His wife has been cleaning houses to keep the family afloat.

But after draining their savings and retirement accounts, the couple have missed four payments on their $636,000 mortgage. Their request for a loan modification from OneWest Bank (formerly failed IndyMac Bank) was denied because the couple’s income was too low. A OneWest representative declined comment.

As banks unload foreclosed properties at deep discounts, they are attracting home buyers back into the market. Today, the National Association of Realtors will release July home sales data, and economists expect it to show the fourth-straight monthly sales increase.

While there have been signs that prices are stabilizing, some economists say that’s a temporary respite. “We don’t think we’ve seen a bottom yet in home prices because of the foreclosure problem,” said Michelle Meyer, an economist with Barclays Capital.

The worst of the trouble is still concentrated in California, Nevada, Arizona and Florida, which accounted for 44 percent of new foreclosures in the country. Nearly 12 percent of all loans in Florida were in foreclosure, the highest in the country, followed by Nevada at 9 percent.

Loan delinquencies among borrowers with prime, fixed-rate mortgages grew from the first quarter to the second in all 50 states, with the biggest jumps in Wisconsin, Illinois, Utah and West Virginia.

President Barack Obama has pledged to fight the problem, but the foreclosure prevention program, known as “Making Home Affordable,” is off to a disappointing start. As of July, only about 10 percent of eligible borrowers had signed up.