The unemployment rate dropped in November, the ""U.S. Labor Department reported Friday"":http://www.bls.gov/news.release/empsit.nr0.htm, as companies shed the fewest number of jobs since the recession kicked in two years ago.[IMAGE] Government statistics show that last month, the jobless rate edged down to 10.0 percent, falling from the 26-year-high 10.2 percent hit in October.
Only 11,000 jobs were lost in November, the Labor Department said. Economists had forecast a loss of as much as 130,000, consistent with the average of 135,000 job cuts seen in the prior three months. The employment market still has a long way to go, though, to recover from the damage done since the start of the recession in December 2007, when the jobless rate was 4.9 percent.
The growing consensus within the mortgage industry is that unemployment is now the primary driver pushing delinquency numbers higher, so the upbeat November labor report is likely a hopeful sign that the pace of loan deterioration could subside sooner rather than later.
But analysts at ""Amherst Securities Group"":http://www.amherstholdings.com say their research tells a different story.
The firm is a holding company for financial firms working with institutional investors of mortgage-related assets, and a new study from its head of residential debt, Laurie Goodman, says borrowers who have been hit hard by falling home prices and owe more than their home is worth are more likely to fall behind on their mortgage payments than homeowners who lose their job.
According to Goodman, borrowers who are underwater with combined loan-to-value (LTV) ratios greater than 120 percent pose a higher delinquency risk.[COLUMN_BREAK] This ""combined"" LTV includes first mortgages on the home, as well as secondary home equity lines of credit taken out before the bust by a large number of homeowners who thought property values could only go up.
Some estimates put second lien debt at over a trillion dollars.
According to Goodman, the default trigger is critical because policy will be shaped around the answer: is the rise in delinquencies stemming from negative equity or unemployment?
Goodman points to the plain and simple correlation of default and unemployment increases Ã¢â‚¬" mortgages defaults began to tick upward when home prices started plummeting, she says, long before the job market began to decline.
In a much more complex analysis, Goodman compared default rates with unemployment and negative equity in various loan categories. She found that unemployment only became a factor when the homeowner's outstanding mortgage was 20 percent more than the home's value, an LTV ratio of 120 percent or more. For those homeowners who had positive equity in their home but lost their job, they still found a way to keep their payments current.
A ""November report from First American CoreLogic"":http://www.dsnews.com/articles/one-in-four-homes-worth-less-than-outstanding-mortgage-2009-11-24, said that nearly 10.7 million, or 1 in 4 residential mortgage holders have negative equity in their home. And that number is expected to go higher still.
The findings of Goodman's team could soon be put to the test Ã¢â‚¬" while home prices in some markets have begun to inch upward, most market analysts say there's still farther to go before prices hit bottom.
The Amherst report demonstrates that improvement in the housing market may not be as tightly linked to unemployment as some might think, and others say a reversal is the likely sequence of events for an overall upturn. According to a contributed report on ""StockTradersDaily.com"":http://www.stocktradersdaily.com/News%20Release/newsrelease0900120001yateshous.html, until there is a housing recovery, there will not be an American economic recovery. The story points to the boom that ended in mid-2007 as an example, where one of every six jobs was created in the housing sector.