Foreclosures Are Driving Up Unemployment

I’ve written several times about how lucky I feel that I can move. We’re going to take an absolute bath on selling our house (a 30% drop in value for a house bought 8 years ago). But at least we have enough money to get out of that house and move to a new job.

Many people in the states worst hit by the foreclosure crisis–FL, NV, AZ, CA–can’t do that. Which means they have to stick with crappy jobs because there’s no way they can move to where people are hiring.

Which is what Rortybomb explains this IMF paper shows.

This paper looks to analyze structural unemployment by regressing a “skills-mismatch index” (SMI), which quantifies mismatches on education level. as well as regressing foreclosure rates on unemployment rates.They find that structural unemployment is 1%-1.75%, with skills being 0.5%. That means housing hurdles run from 0.5% to 1.25% of unemployment.   So that means the large majority of structural unemployment is housing related.


This paper shows that a large majority of structural unemployment is the result of underwater mortgages and foreclosures. In addition, when foreclosures are added into the regression alongside [skills-mismatch index], SMI loses some of  its value, and when a cross term is added skills loses a bit more. Right now, the story is one of foreclosures.So groups that fight foreclosures, say what many over-worked and under-paid community organizers do now, are groups that fight to reduce structural unemployment for everyone. Same with those trying to get cramdown and right-to-rent and better short sales. Which is a worthwhile thing to be doing.

And it’s not just that being in a house that has lost value makes it harder for an individual to move to a job (or a better job). It’s that the crappy housing market is bringing everyone down in areas worst hit by it.

Rortybomb analogizes what the banksters (and, I would add, Treasury) have done by letting the housing crisis fester like it has to a corporation coming into a town and releasing burning chemicals.

Let’s say that Bank of America and drove a truck full of chemicals into a town square and proceeded to burn the chemicals. The toxic fumes of these chemicals caused a statistically significant number of workers to be so sick that they ended up not able to work and detached from the labor force and forced major costs onto municipalities. We’d tax the hell out of BoA for burning those chemicals, right? Externalities and all that.So let’s replace “burning toxic chemicals” with “foreclosures.” It’s the same story. Especially foreclosures that haven’t been reviewed by a judge, or foreclosures where there wasn’t proper representation or where a right-to-rent or modification was available. So why aren’t we taxing the hell out of foreclosures?

The foreclosure crisis is killing entire states. And yet the priority still seems to be focused on rescuing the banksters, not the homeowners.

  1. Peterr says:

    Once we let banks get away with not filing titles at the county clerk’s office, and instead privatize their mess with MERS, we gave away the best tool to hold the banks accountable.

    Slowly, cities and counties are waking up to this. At a minimum, they are requiring banks to report properties they have seized and requiring them to keep them up and not simply let them fall into disrepair.

    From PropertyWire:

    Los Angeles is getting tough on the owners of foreclosed properties who leave them empty and let them fall into disrepair by increasing fines. In particular officials are cracking down on financial institutions such as banks and mortgage companies that seize properties and leave them to fall into a state of disrepair.

    It is the city’s largest attempt to date to deal with a neglected 27,000 foreclosed properties that become an eyesore and also bring down the prices of neighbouring real estate.

    ‘It is right that the banks should be held accountable to cleaning them up. A lot of vacant homes have become a nuisance because of the foreclosure crisis,’ said Betty Steele, one of several community activists who is encouraging residents to report problem properties via the city’s 311 hotline.

    ChicagoNow from back in May:

    The Chicago City Council’s Buildings Committee was back in session today, this time taking up a pretty straightforward question: who is responsible for keeping people out of the thousands of vacant, bank-owned properties left in the wake of the foreclosure crisis? While the phrase “bank owned” seems like a pretty good clue to us, aldermen are still looking for ways to hold them accountable during the foreclosure process.

    The latest idea comes courtesy of Northwest Side Alderman Dick Mell who is proposing that banks hire overnight guards to secure their properties. The measure passed out of committee today and will move to the full council for a vote next month.

    But at a press conference unveiling the former proposal out in Albany Park yesterday, Mell let us in on to another sure-fire (and taxpayer free) way to get the banks attention: threaten to pull their city business.

    It’s a strategy that city officials have used to cajole banks in the past. And that’s exactly what Mell did when U.S. Bank dragged its heels on rehabbing a prominent, vacant building in Mell’s own ward. When he took steps to pull them off the list of city repositories, “voila!” The building is now on its way back to life.

    Likening the glut of vacant and foreclosed properties to “Chicago’s BP Amoco problem,” Mell said, “the banks and the lending institutions that caused this problem have to move faster.”

    City officials have made it clear that boarding up foreclosed properties, which the Sun-Times reports cost taxpayers a cool $7 million last year, now tops their list of challenges. For a little perspective why, consider this: 3,700 vacant buildings are currently registered and another 11,000 to 12,000 vacant properties are expected to spring up this year, according to the buildings department. But as the Albany Park Neighborhood Council points out, only 24 properties are registered with the city, though there are hundreds around the community.

    There’s more at both links.

    Of course, if Treasury was as worried about keeping people living in these homes as they appear to be worried about keeping banksters in their country clubs, that would go a long ways toward reducing the number of foreclosures in the first place.

    But it sure looks like municipalities aren’t holding their breath waiting for that to happen.

  2. nahant says:

    The foreclosure crisis is killing entire states. And yet the priority still seems to be focused on rescuing the banksters, not the homeowners.

    Same old shit! They keep the rich and let the rest of us pay to keep the rich rich. Nothing new here… Time for change we can not only believe in but change we can see!! Tax foreclosures! Bring back 90% top tax bracket! Tax all capital gains as regular income.. not this destructive 15%. And on and on…

  3. grayslady says:

    Thanks for highlighting this, EW. I’ve been saying this over and over, since I truly believe that housing, and all the ancillary businesses that provide goods and services to homeowners–from repairs to appliances–are the heart of our economy. If you don’t address housing, you can’t address unemployment or personal financial security. For years the U.S. tax policy has promoted homeownership as a form of social stability and wealth creation. While there are certainly places where housing prices were, and remain, obscenely high, the real problem today is that the mortgage market has dried up, even for people with good credit. Those hardest hit by a loss on property value are those of us in middle-market homes; high-priced homes are still selling for well above their purchase prices.

    • BayStateLibrul says:

      Indeed, the high-end market will succeed.

      That’s why we need to bring the tax rate back to pre-Bush levels (over $250,000K)…

  4. onitgoes says:

    The corporate-owned rightwing media has done a good job at demonizing and villifying the citizens who go into foreclosure with nary a peep about the banks’ role in all of this… as if the banks are blameless. Sure the home owners share responsibility, but not all of it.

    As the crisis deepens, it’s beginning to affect those who were, until recently, considered “upper middle class.” Sorry to say but until the somewhat wealthier among us start taking the hit (and not just the less wealthy and the poorer folk), I don’t believe the depth of problem will really sink in.

    In the not too distant past, the banks used to “work with” people going into foreclosure bc it usually made fiscal sense to keep someone in the house and for the bank to at least get some of the mortgage back. Not being a homeowner myself, it’s unclear to me why banks would prefer to have vacant properties with no income coming in. I suppose it has somethign to do with debt leveraging, which is a real disasterous concept in our current capitalistic system.

    What a mess. I agree that cities and counties are starting to wake up and take steps to redress this with the banks. About time, too. We certainly can expect NOTHING from the federal level of govt at this point.

  5. bluewombat says:

    The foreclosure crisis is killing entire states. And yet the priority still seems to be focused on rescuing the banksters, not the homeowners.

    Might that be because the political class is bought and paid for by the corporate class?

    • oldoilfieldhand says:

      It will get worse in this election cycle as Citizens United, the Supreme result of the race to the bottom of a bought and paid for political class goes into full effect.
      It’s time for Citizens to Unite against Citizens United. Let Corporations spend all their personhood hearts desire in political advertising as long as it is taxed at a 400% rate.

      Thank you for all you do Marcy! Where would we be without your insight and determination? Good luck in your relocation!

  6. BayStateLibrul says:

    That really sucks.

    I noticed the housing market has shifted from building residential housing

    to building rental properties.

    That fucking housing bubble…

  7. playfyte says:

    This is also caused by the fact that in today’s financial system greed is at an all time high as the motivating factor in business dealings. If I lend someone two thousand dollars at ten percent interest, I expect to gain two hundred dollars when we conclude our business. But some time ago, I don’t know when, they came up with the concept of the APR. Now if a person has his home financed he can expect to pay more than two times what the home is actually worth. We were sold the idea that someday we could sell an eighty thousand dollar home for two hundred thousand dollars. When a financial crisis like this happens; that is when you find out what a home is really worth. Although it would never happen, I believe that what a city could possibly do is to hold property lotteries. They could select several hundred properties in certain neighborhoods and actually give them away to middle income families that live in the city. This way they could benefit from the tax revenues and keep the properties from falling into disrepair. These families might never be able to go into a financing deal with a bank to actually buy a home and maintain the mortgages but if it were their home they could do a great job of maintaining the homes and they make enough money to meet the tax burdens. This would benefit everyone. The banks would be out but then again who really cares about banks. It is banks and other financial institutions that got us into this mess. They always do. Give them enough time and you will see that someday, again, it will be them that create the next financial crisis. There is a huge unbridgeable difference between the profit motive and pure unmitigated greed. It is they, not the average working Joes, that do all the damage to our economy. This has been the history of the corporate fat cats since the days of people like J.P. Morgan and the like. They couldn’t care less about the health and stability of our country. To them it is all about money. It’s an addiction like any other. It comes with a great deal of destructive side effects. Everything in life cannot and should not be about profit.

  8. Cynthia Kouril says:

    What a great insight Marcy.

    Foreclosure crisis exacerbates job crisis.

    Yet, the gov’t does not force principle writedowns or meaningful mortgage modifications.


  9. Mauimom says:

    Minor typo:

    Let’s say that Bank of America and drove a truck full of chemicals

    Should there be an additional word in here? “Came”?

    Or should the “and” be eliminated?

    In all, a great post.

  10. Mauimom says:

    PS – I can’t get the nasty BP ad to move out of the way so that, when I click on the little green “send” icon, I can get to the window containing ways I could e-mail this article. BP ad blocks the window.


  11. solerso says:

    thanks for talking about something that should be self evident in media coverage but isnt. homeless people are inherently unstable and its hard to get to work every morning when your sleeping all over the city, and cant shower or wash clothes, and frequently are trying to feed and house your children at the same time

  12. wavpeac says:

    Lest not forget the amount of fraud in these mortgages. The problem is not foreclosure…the problem is fraud. And yes, it’s destroying the economy. The full truth is not out on the amount of fraud or the extent.

  13. PierceNichols says:

    I agree that the glut of unsaleable and underwater houses is dragging the unemployment rate up. So, how do we fix it without preventing housing prices from returning to historically sustainable levels or bankrupting all of the remaining banks?

    PS — some places, especially those with a strong manufacturing or technology base (or both, yay Seattle) are doing much better than average, some to the point where the claim that the recession is over feels mostly true.

  14. willits says:

    Singapore is part of China but recognized by us as a viable trading partner. The smartest thing China could do is go through Singapore and set up mortgage banking in the US. Charge a point up front, 7% down and a lock in at 3.5% interest, balloon in 15 yrs. We’re at the bottom of the market with our banking system making it almost impossible to get a loan. China could make a killing with little risk. Could be one hell of a reality check for our banking system.

    • PierceNichols says:

      Singapore is part of China? REALLY??

      Also, housing prices in the US have still not returned to historical levels. I don’t believe we’ve seen anything like the bottom.

      • willits says:

        Sorry, misspoke. Typed a little too fast, Singapore could easily be a hub between the US and China for an emerging mortgage co. God help us if prices dropped any more, I have friends that want to walk away from their homes because they have lost so much equity. It’s not that they can’t make the payments, it’s more about paying more for their home than the foreclosure sold next door. In LA we are seeing prices climb, slowly but climbing none the less. The issue I see is that it is next to impossible to get a loan without an 800 min credit score and 20% down. I see an opportunity for China to invest that our (bailed out) banks fail to see.

        • PierceNichols says:

          The core problem remains that inflated housing prices have severely distorted the US economy, directing capital away from productive investment towards speculation and asset inflation. We can’t fix things while they remain inflated, because they will continue to distort the flow of capital away from productive investment.

          The average inflation-adjusted return on a constant house from 1890-1997 was a remarkably steady ~0.9% APY. Then the inflation-adjusted Case-Shiller Index headed for the stratosphere. Prices still have not fallen back below that line and I believe that the crisis will continue until they do.

    • PierceNichols says:

      The only places you could be talking about are Hong Kong and Taiwan… 1600 and 2000 miles, respectively, from Singapore as the crow flies. Stop confirming foreign stereotypes about ugly (and stupid) Americans.

  15. readerOfTeaLeaves says:

    The foreclosure crisis is killing entire states. And yet the priority still seems to be focused on rescuing the banksters, not the homeowners.

    I just wish that this was in neon lights, 200 feet tall in Times Square, and every other main intersection in the U.S.

    The hits to school districts, municipal, and state governments that I’ve been hearing about for the past year are brutal. I don’t think government as currently constituted with Dems-GOP can deal with it. I think it’s going to require a third party, or some other entity.

    The Dems have not shown enough cajones, and the GOP has too few brain cells.

  16. kt2kelly says:

    Alan “Taz” Grayson is back again, and asks some very relevant questions of Fannie’s CEO Michael Williams:”Why is Fannie Mae using lawyers that are accused of regularly engaging in fraud to kick people out of their homes? Given that Fannie Mae is at this point a government entity, and it is the policy of the government that foreclosures are a costly situation best avoided if there are any lower cost alternatives, what steps is Fannie Mae taking to avoid the use of foreclosure mills? What additional steps is Fannie Mae going to take to ensure that foreclosures are done only when necessary and only in accordance with recognized law? How do your servicer guidelines take into account the incentives for fraud in the fee structure of foreclosure attorneys and others engage in the foreclosure process? What mechanisms do you employ to monitor legal outsourcing?” He almost asks the correct one: “Is Fannie (and Freddie) a shell operation to willfully and illegally transfer non-existent deeds to servicer banks so they can collect subsequent cash flows associated with misappropriated properties, while receiving tens of billions in taxpayer funding each and every quarter.”

  17. liberalarts says:

    I’ve lost about $100,000 off the pre-crash value of my house–which is a hell of a hit for an upper lower class, self-supporting, 67 year old single. The only thing that’s keeping me sort of right side up, but listing badly, is that I bought in 1977. Considering the actual value of money over that span, I haven’t made a dime, I may well have lost money. And Obama’s cat’s paw commission wants to slice and dice SS and Medicare? Sharron Angle’s second amendment remedies rise to mind.

  18. PJEvans says:

    Or the other side of the coin: lose your job, you can’t pay the mortgage, your house ends up in foreclosure, and you’re up the creek, because you can’t afford to move anywhere.