Foreclosures Still a Drag on the Economy

   

Posted: Aug 27, 2009

The nation's foreclosure rate is continuing to drag down both the economy and consumers' personal finances.

The latest figures from TransUnion found a record-breaking level of mortgage delinquencies, with 5.81 percent of mortgage loans behind by more than 60 days as of the second quarter of 2009. Mortgage delinquency rates have now been on the rise for 10 straight quarters, and the latest quarter's numbers represent an 11.3-percent increase over the previous quarter.

TransUnion also noted that year-over-year mortgage delinquency rates were up 65 percent, with only 3.53 percent of all mortgages having been in delinquency at this time last year.

Mortgage delinquencies remained highest in states that have absorbed the hardest blow from the housing crisis, including Nevada and Florida. The credit bureau estimates that Nevada will have the highest mortgage delinquency rate in the nation by the end of the year — possibly as high as 16 percent.

Despite the record-breaking foreclosure rate, there may still be cause for optimism in the latest numbers. For example, the quarterly growth rate of mortgage delinquencies has actually gone down for the first time since the beginning of the recession in late 2007, noted FJ Guarrera of TransUnion, who went on to cite some other positive economic indicators, such as rising consumer confidence and a leveling-off in unemployment figures.

Some homeowners with mortgage problems have been turning to federal programs for help, although these have not necessarily put a significant dent in the foreclosure rate. Another option for some may be loan modification.

Writing in Florida's Sun-Sentinel newspaper, personal finance columnist Harriet Johnson Brackey warns that loan modification efforts that could potentially help keep people out of foreclosure in the short term will also be a significant risk to one's credit score as of September.

Starting next month. according to Brackey, lenders will be able to report a loan modification to the credit bureaus as a "partial payment." Brackey quotes a FICO spokesman as warning that this can lower one's credit score by as much as 50 points.

She also points out that a large majority of homeowners who qualify for these loan modifications haven't actually taken advantage of them.

Meanwhile, a recent report in HealthDay News finds that homeowners have more than just a financial or credit hit to worry about if they experience foreclosure troubles. The article notes that a study involving 250 Philadelphia homeowners finds that another frequent consequence of such problems is major depression.

The study found that more than half of those who had been foreclosed upon reported being depressed, with 37 percent of them experiencing major depression symptoms. Also, the survey found that 60 percent of this group had been skipping meals and 48 percent were skipping prescriptions because of money problems.

While unemployment is widely cited as a leading factor in the foreclosure problem, HealthDay News noted that nine percent of people in the Philadelphia study reported that medical bills were a significant factor in their financial troubles, with 25 percent overall reporting significant amounts of unpaid medical debt.