Friday, March 13, 2009

Americans On the Edge: Income Curtailment, Foreclosures, and Modification Redefaults

One of my earliest posts talked about the root cause of most loan defaults; household income curtailment, typically the result of a job loss, illness, or divorce. Subsequently I’ve posted on the interplay between income curtailment and home values, and the use of home equity as a piggybank when income is curtailed and how the decline in home equity has eliminated this safety net. I’ve also talked about the role income curtailment plays when borrowers who have received loan modifications default again.

So how close to the edge are American households? Way too close. From Housing Wire:

Want a stunning figure? Half of Americans now say they are only one month or less away from not being able to meet their financial obligations if they were to lose their job — just two paychecks or less. And of these, more than half — 28 percent of all Americans — say they could not survive financially for more than two weeks without their current job.

This disturbing data comes courtesy of the 2009 MetLife Study of the American Dream, released Monday, which looks at how the financial crisis has affected the American Dream and consumer perceptions. It’s all the more disturbing considering that unemployment in the U.S. has already surged to 8.1 percent, with 651,000 jobs lost last month alone.

Is it any wonder a large percentage of borrowers receiving loan modifications subsequently redefault?