Transcripts

As Unemployment Surges So Do Fears About The Housing Crisis

SUSIE GHARIB: With today's news of 84,000 jobs cut from U.S. payrolls, economists are worried more American homeowners could soon end up in foreclosure. The Mortgage Bankers Association said today that late payments on home loans are already growing, and not just among sub-prime borrowers. Stephanie Dhue reports.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: What was once considered a sub-prime problem is now clearly a prime one. First, adjustable rate mortgages, made to people with poor or sub-prime credit, went bad. Now, delinquencies and foreclosures are hitting borrowers with solid or prime credit, but who took out adjustable rate mortgages with payments that shot higher. Mortgage Bankers Association chief economist Jay Brinkmann says it's those loans that are behind the current rise in foreclosures.

JAY BRINKMANN, CHIEF ECONOMIST, MORTGAGE BANKERS ASSOCIATION: For the first time we have seen that the increase in foreclosures is more heavily weighted toward the prime adjustable rate market, rather than the sub- prime, that the prime ARMs actually were equal to sub-prime fixed rate and sub-prime ARM rate loans combined.

DHUE: Foreclosures are expected to continue to mount as the economy slows and unemployment rises. While states like Michigan, Ohio, and Indiana have already been socked by manufacturing job losses, foreclosures in places like Virginia, Maryland, and New Jersey are driven by problem loans.

BRINKMANN: It has really been a problem of a combination of overbuilding, new subdivisions at risk, the types of loans that people were put into, overreaching with credit.

DHUE: One out of 10 borrowers with a prime adjustable rate loan is now either late with their payment or in foreclosure. Economist Dean Baker expects that number to rise as more homeowners see their monthly payments increase and their home values decrease.

DEAN BAKER, CO-DIRECTOR, CENTER FOR ECONOMIC & POLICY RESEARCH: People are in a situation where many of them are going to give up in the sense that they realize, you know, they owe $400,000 on a home that's worth $350,000 or $300,000, or in some cases even less. So there's just less incentive for people to try to fight it.

DHUE: And fighting to hold onto their homes may be impossible for the growing number of Americans who are losing their jobs. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.