A Job Loss is Cause for Worry 24/7

Bloomberg is reporting today that foreclosure filings in the U.S. topped 600,000 for the sixth straight month. There are some nuances in that.

First, a lot of the so-called "Option ARMs--" also called "pick-a-payment" loans or, perhaps most egregiously, "Smart" loans, are re-setting. Most of them had five year triggers, and they triggers are getting pulled.

Second, and perhaps worse, a growing number of foreclosure filings are job-related, more particularly, loss-of-job related.  Why is that worse? Well, the main reason is the true human tragedy involved. It's among the most helpless feelings in the world, a feeling which has been compared to having someone close to you die.

But another reason has to do with what the lender will do in such cases.  When the loan value equals or exceeds the house value, lenders are willing to try loan modifications or other forms of loan workouts as well as short sales. But when people who lose their jobs can't make their mortgage payments, very often, their houses have some decent equity, because they've owned the house for some time.

And in those cases, a lender is more likely to foreclose than to work out something with the borrower.  If the house has a fair amount of equity, lenders see themselves as being able to recover their loans by taking back the house and re-selling it.