Job Loss, Not Subprime, Led to Philadelphia Foreclosures

by on cities

Job losses or significant declines in earnings, and not subprime mortgage loans, were the main causes of foreclosures in Philadelphia, according to Pennsylvania housing analysts.

During the housing boom, while other cities had their home prices soaring by four times their original listing prices, home prices in Philadelphia only doubled. This price level enabled borrowers to buy homes using more conventional loans, without the need of considering subprime loans just to be able to afford higher-priced homes.

According to Steven Adamske, communications director for the House Financial Services Committee, subprime loans drove foreclosures in 2008, especially in the foreclosure-battered states of Florida and California. With these foreclosures came business losses that triggered job losses and high unemployment rates.

Now, unemployment is causing further foreclosures, continuing the cycle of economic difficulties that can only be stopped with the stabilization of the housing sector.

Patricia Hasson, head of the Consumer Credit Counseling Service of Delaware Valley, said almost all distressed homeowners asking for help from her agency are in danger of foreclosure because of unemployment or decline in earnings.

An example is the case of 45-year-old mother Krystyna Buoncristiano who has been paying her home loan in Northeast Philadelphia for 13 years.

Since the time she lost her job, she has been trying her best to prevent her house to go into foreclosure by paying interests and late fees for the missed two months.

In the meantime, she has received differing pieces of advice, such as selling her house through a short sale and stopping all payments to her lender. There are those promising to solve her problem for just $2,000, but without guarantees.

Her lender, CitiMortgage, was primarily interested whether she had already found a job. The bank also told her that her loan cannot be modified until she has become delinquent. In her frustration, Buoncristiano said that the system wants homeowners to fail.

Kevin Gillen of Econsult said that housing has become the cause of recession rather than its effect and that this is the first time this has happened in the U.S.

Other housing analysts also remarked that typically, foreclosures occur at the end portion of an economic downturn, but they said this economic downturn started in the early months of 2006 with record foreclosure filings and low unemployment levels.

According to John Dodds of the Philadelphia Unemployment Project, responding to the problem of foreclosures with loan modifications is not effective for people who have no jobs because they would not be able to pay even reduced monthly payments.