Home Foreclosure Process Driven by Unemployment

The home foreclosure process is being driven largely by the continued rise in unemployment throughout the country, according to Equifax Inc. Unemployment has been pushing up the pace of mortgage defaults nationwide, driving more homeowners to bankruptcy and foreclosure.

According to data from Reuters, among mortgage borrowers nationwide, 7.58 percent were at least one month in default on their loans in August, an increase from 7.32 percent in July.

The August increase in defaults also marked the fourth straight month that defaults increased, based on the Equifax data. In August 2008, only 4.89 percent of mortgage borrowers were delinquent by at least 30 days and in August 2007, only 3.44 percent were in default by at least one month.

Meanwhile, the default rate of subprime borrowers has reached 41 percent, an increase from around 39 percent in the previous 5 months.

Providing another sign that Americans are still financially struggling, bankruptcy filings in August increased by 32 percent from filings in August last year. In July, bankruptcy filings rose by 35 percent compared to filings in July 2008.

Additionally, mortgage borrowers who are unable to restore their home loan accounts to current status are forced to see their properties go into the home foreclosure process.

Surprisingly, while more and more American homeowners are defaulting on their home loans, the percentage of Americans late by at least 2 months on their credit card debts dropped for the third consecutive month in August. Delinquencies by holders of subprime credit cards also declined.

However, the decline in credit card delinquency rates may not have been driven by consumer behavior but by card issuers who have cut their pace of card issuance significantly by 19 percent over the past 12 months. Card issuers have cut 82 million credit cards and have reduced credit card limits by $721 billion.

In addition, they have also slowed their new card issuance pace. In June, they issued only 2.6 million new credit cards, compared to 4.7 million new cards issued in June last year.

Card issuers are also gravitating towards consumers with strong credit scores, according to Equifax. In 2007, about 1 in 5 new credit cards were issued to consumers with a credit score higher than 760. Now, 2 in 5 new cards are given to those with high scores.

Total consumer debt has also declined by over $300 billion from total debt in September 2008, reflecting efforts by consumers to manage wisely their finances and avoid the home foreclosure process.

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