Unemployment is a bigger reason for missed mortgage payments than
high interest rates, according to a study from the Boston Federal
Reserve that raises questions about President Barack Obama's plan to stem foreclosures by modifying loans.
have lost their jobs or because the price of their homes has plummeted
than because of tough terms on their mortgages, the study found.
either, wrote Boston Fed economists Christopher Foote and Paul Willen,
Atlanta Fed economist Kristopher Gerardi and Lorenz Goette, a professor
at the University of Geneva.
overcome setbacks such as losing their jobs may be more effective in
source of defaults, the economists wrote in a study released on the
Boston Fed's website late last week.
announced in February that would give up to 9 million families the
chance to refinance their mortgages. President Obama's administration
has made loan modifications a central plank of its efforts to tackle
the housing crisis.
crisis can be attenuated by changing the terms of 'unaffordable'
mortgages, the economists wrote. But policies that focus on loan
modification face important hurdles in addressing the current
foreclosure crisis, they wrote.
part of an individual homeowner's lost income from a job loss through
loans and grants and help those whose predicament is more permanent
foreclosure is avoided, they said, and that could help explain the
relatively small number of loan modifications to date. Estimates that
total gains for investors from modifying rather than foreclosing can
run to $180 billion may not take into account a number of key factors.
who would have repaid anyway. Borrowers with modified loans may default
again later, especially if the reason they were driven to default
remains, the economists said.