foreclosure sign

photo by respres

Rising unemployment is triggering a new wave of foreclosures:

Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers’ introductory interest rates expired and were reset higher.

“We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.”

Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis.

Economy.com expects that 60 percent of the mortgage defaults this year will be set off primarily by unemployment, up from 29 percent last year.

The wingnuts have turned this into their own little morality play with themselves at the center, as solid citizens taking responsibility for their personal finances as opposed to the pot-smoking hippie losers who took on mortgages they couldn’t afford. And then they all teabag each other.

The truth is that Americans made decisions about their financial future based on assurances by the Chairman of the Federal Reserve and others that the value of their homes would never go down, and believed that it was a safe place to concentrate their assets. Now the bubble has burst, their 401Ks are worthless, and they’re losing their jobs. They owe more money on their houses than they are worth, and walking away becomes not only a sane economic decision, but a matter of financial survival.

The Center for Responsible Lending (PDF) says that foreclosures on subprime loans through the end of 2009 will result in a decline in property value for homes in the surrounding areas of $352 billion, or an average of $8,667 per home. This will drive even more people underwater, and perpetuate the downward spiral–but bankruptcy judges can’t step in, write principle down to current value, and try to stem this thing because the little lizard wingnut brain can’t execute simple math.

Banks are counting on them, because they know eventually the government will have to step in and pay them off. That’s why they paid over $42 million to lobbyists who were working to defeat cramdown in 1Q 2009. They got a lot of help from simple minded wingnuts who don’t understand anything more complex then their selfish little lizard brains, and demagogues like Jon Tester who absolutely do know better. Add an administration that doesn’t have the courage to take them on and do what’s right for the economic security of the country and things just get worse from here.

The banks certainly do "own the place," but not without a lot of help.

Update:  I see Atrios is there too:   "If this is the third wave, then there will also be a fourth, when option ARM rates start recasting. Good thing the banksters got rid of bankruptcy cramdown, because we’ll get to bail them out again."

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