A recent report by a congressional oversight panel highlighted the changing nature of the housing crisis by suggesting that the Obama administration's sweeping anti-foreclosure initiative might not be suited to address the mortgage delinquency epidemic as it exists today. The initial portion of the foreclosure mess was triggered in large part by over-leveraged borrowers who got in over their heads with resetting mortgage products and homes they couldn't really afford. But today, as the unemployment rate heads for 10 percent, a growing number of borrowers with good credit are heading into foreclosure after losing their jobs. However, the Obama administration's housing rescue "was not designed to address foreclosures caused by unemployment, which now appears to be a central cause of nonpayment," the panel said in the October 9 report. "The foreclosure crisis has moved beyond subprime mortgages and into the prime mortgage market. It increasingly appears that [the Obama administration's housing rescue] is targeted at the housing crisis as it existed six months ago, rather than as it exists right now."
Last week, real estate company Zillow released some figures that further demonstrate the troubling evolution of the housing crisis, as an increasing number of upper-tier homes are now heading into foreclosure. At the peak of the real estate market back in 2006, homes in the top third of the property value spectrum made up just 16 percent of foreclosures nationwide, Zillow says. But by July of this year, this most expensive segment of the market accounted for 30 percent of home foreclosures. "That means that top-tier homes make up almost twice the proportion of foreclosures as they did just three years ago," Zillow Chief Economist Stan Humphries said in a statement accompanying the data.
Meanwhile, home foreclosures at the lower end of the market are trending in just the opposite direction. Properties in the bottom third of the home value spectrum represented 55 percent of all foreclosures in 2006, but just 35 percent in July. Humphries believes the trend reflects a significant change in the types of mortgages that are going bad these days. "High delinquency rates in Prime, Alt-A and Option ARM mortgage products and declining cure rates (the rate at which borrowers resolve their delinquency status) are resulting in many more foreclosures among borrowers outside of the sub-prime mortgage market (and in higher priced segments of the market)," he said.
While subprime borrowers are still a factor in the current foreclosure epidemic, it's becoming increasingly apparent that the labor market is the driving force behind the mortgage crisis we face today. Mounting job losses are turning once-well qualified buyers of high-priced homes into foreclosure victims.