Boston Federal Reserve Says We Need to Target the Source of Foreclosures

According to a study from the Boston Federal Reserve unemployment is the main reason for missed mortgage payments over high interest rates. This raises questions about President Barack Obama’s plan to stop foreclosures by using loan modifications. The study states that borrowers are more likely to default on their mortgage payments because they have lost their jobs or because their home value has plummeted than because of tougher terms on the mortgage.

The study says that policies that directly help homeowners overcome the source of the problem such as job loss may be a more effective method of combating foreclosures. “Foreclosure-prevention policy should focus on the most important source of defaults,” the economists wrote in a study released on the Boston Fed’s website late last week.

“One of the most influential strands of thought contends that the crisis can be attenuated by changing the terms of ‘unaffordable’ mortgages,” the economists wrote. But policies that focus on loan modifications directly “face important hurdles in addressing the current foreclosure crisis,” they wrote.

To read more about modifying loans may not stem foreclosures: Boston Fed head on over to Reuters.