4/14/2007

Jobs, Not Subprime, Continue To Drive Foreclosure Rates

I recently read an article on Yahoo entitled, “Jobs, Not Subprime, Continue To Drive Foreclosure Rates.” In this article, the author states that California leads the nation in sub-prime loans, yet its foreclosure rate is below the national average. The author of the article suggests that California’s ability to create new jobs is the reason for not having a foreclosure rate similar to or higher than the national average. I find this article very interesting, because there have been many media sources lately that have been blaming home foreclosures on the sub-prime market. In fact, most sub-prime lenders have recently shut their doors because so many of their loans have gone into default. My opinion after reading this article is that sub-prime borrowers are not entirely to blame for loan defaults, but the lack of jobs is the primary reason for foreclosures. Many companies in the United States are moving their operations overseas in an effort to cut costs. In my opinion, I think that this may be the cause of many foreclosures. I think that if we want to keep our economy strong and avoid foreclosures we must continue to create jobs and offer incentives to companies to keep their operations in the United States. What do you think?

4 comments:

Jessica said...

I think that the borrowers of subprime loans are entirely to blame for the foreclosures. We as a society are not very good at saving our cash. The unemplyment rate across the country is at a record low, but we still cannot meet the mortgage payments, why? The reason is that we (the consumers) do not save. People wanted to build equity in a home and pay minimal for the equity. Many people do not view real estate as a risky investment, but almost all of those are now reeping what they sowed. The real estate market is risky, especially if you have a loan that does not pay anything toward the principal. The market has gone on a downward spin and people cannot keep up, how can we place the blame on anyone other than the person who has a house they cannot afford?

Hunter said...

I love this post! I have been thinking a lot about this issue as of late because I am looking to buy a foreclosure. I agree with the original post because it makes sense that if there are more jobs available and therefore more people who want jobs can find them and have a steady income, they will not default on their payments. Though I also agree that sub-prime loans could be part of the problem, I don't think that they are more prevalent than the job availability issue of any given location. Simply put; more jobs = more money = less foreclosures.

Kim said...

I disagree with the article and the post. Experts have been predicting that 2007 would be the start of high foreclosure rates because the interest rates would go up -- not only because of the subprime -- but because homeowner's loans would mature. Homeowners got loans with 3 or 5 year arms and many were uninformed by their loan officer that the interest rate would jump after a certain number of years. Also, a lot of loans should not have been made. Countrywide, and other companies, are redoing their qualifications to get a loan because they tooks risks that they shouldn't have. If banks and companies are making loans to people who can barely make the payments in the first place, then they are setting themselves and the homeowners up for foreclosure. New job growth is always a good thing, but if all homeowner's incomes are not rising, then it will not help overcome the foreclosure rate.

Dr. Tufte said...

-1 on Jessica, Hunter and Kim for grammatical errors.

This "crisis" is overblown. Subprime loans are those on which a higher rate must be charged to compensate for risk. The firms making the loans understood these risks.

What we need to do is look at the big picture. When the economy is doing well, subprime lenders make a ton of money. When the economy worsens they go out of business readily. If we consider the data over the entire business cycle, it isn't clear at all that anything is happening which isn't normal.