Prime Borrowers Ask: "What Bottom?"

Bloomberg reports on some new first quarter foreclosure data released today. The good news: subprime mortgages no longer account for the biggest share of new foreclosures. The bad news: that's because prime mortgages do. The worse news: the percentage of loans entering foreclosure is the highest on record, going back to 1972. In short, the good old days are returning -- more people are foreclosing because they're unemployed, not due to wacky subprime or adjustable rate mortgages.

Bloomberg turns to the Mortgage Bankers Association (MBA) for some insight:

The three-year housing decline is proving resistant to efforts by the Federal Reserve and the Obama administration to keep homeowners current on mortgages by allowing them to refinance or sell to buyers enticed by affordable terms. Prime fixed-rate home loans to the most creditworthy borrowers accounted for the biggest share of new foreclosures at 29 percent, MBA said, a sign job losses are hurting homeowners.

"If people don't have a paycheck they can't support a mortgage," Jay Brinkmann, the MBA's chief economist, said in an interview. "The longer the recession lasts the more people run through their savings reserves, leading to higher delinquencies and higher foreclosures."

Just when you thought the housing market may finally be approaching the bottom, unemployment arrives late to the party. The above statistic should be especially alarming. Prime fixed-rate borrowers are the "good guys." They're not the ones who were acting irresponsibly obtaining absurd mortgages that they would never be able to afford. Or if you prefer, they were not the ones being taken advantage of by unscrupulous mortgage brokers. They're the responsible Americans with a solid income, some savings and a high credit score. They never had any trouble making mortgage payments -- until they lost their jobs.

Now that prime borrowers are dominating foreclosures due to unemployment, it seems that Pandora's box has been reopened (if it was ever closed). The housing market may keep plummeting for as long as it takes for unemployment to decrease. Since recovery in employment generally lags that of the broader economy, the housing market may continue to tumble well into 2010.

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

Saving the Bees

Honeybees contribute more than $15 billion to the U.S. economy. A short documentary considers how desperate beekeepers are trying to keep their hives alive.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus


How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.


Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.


The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.


Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.


Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses


Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In