The Wall Street Journal pointed out that many people are defaulting on their home mortgages not because they have to but because it makes sense. Some homeowners can afford the monthly payment, but they know that their houses will never give them a financial return.
Most research shows that the rate at which foreclosures is rising is slowing, but that trend is almost certainly temporary. A large number of people who took “interest only” loans three years ago are about to have monthly payments reset. The government’s mortgage modification plan has signed up very few permanent clients, and unemployment is likely to be above 10% during 2010.
Reuters reports that “Among U.S. homeowners with mortgages, 7.91 percent were at least 30 days late on payments in November, up from 7.76 percent in October”, according to credit agency Equifax. The number is not only extraordinarily high. It does not show signs of dropping soon.
The recovery in consumer spending is supposed to be one part better employment trends, one part easier access to credit, and one part an improvement in the value of US household assets. Employment and credit access are not improving. Households that have stocks and bonds have done well since March. But, if home values are critical to better consumer spending, the improvement is a long way off.
Douglas A. McIntyre
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