Article Summary:
Article Content:
My post yesterday about Congressional efforts to extend unemployment led me to a rather off-the-cuff comment about how efforts to reform unemployment have left those homeowners without a job to face the brutal foreclosure system. And the unemployed homeowners aren’t able to qualify for programs to modify their mortgages because they don’t have sufficient income to ensure that they can pay a modified mortgage. I thought I would expand on this a bit today.
The de facto policy of the federal government, if I have read the situation correct, is that a homeowner on unemployment must race to find another job before the bank can proceed through the foreclosure process to take their home. If they are able to find work again before the bank forecloses on their home through the judicial process, at a salary somewhat sufficient to support the home, the homeowner can then apply for a loan modification from their mortgage company. If they can’t find work, they are left with the option of pursuing a quick short sale or losing their home.
That policy just doesn’t make much sense.
When the Federal Government passed the economic stimulus plan in March, it provided temporary relief in another area that had burdened families hit by unemployment: health insurance. COBRA has offered laid off workers the right to continue their corporate sponsored health plan if they picked up the tab for many years. The problem with the system was that the health insurance premiums were so high and the weekly unemployment benefits so low that many were unable financially to take advantage of continued coverage through COBRA. As part of the stimulus plan, the government offered to subsidize 65% of the cost of COBRA health insurance for unemployed workers for up to nine months. It was a great idea and one that should be extended beyond its current limited term.
The federal government should create a similar provision for troubled homeowners who have been laid off. By subsidizing mortgage payments for those who have lost their income, the burden on the courts, the financial system, and the real estate market of the unemployed could be diminished.
The premise behind unemployment is that workers need a temporary solution to bridge the gap between the paycheck from their next job and the one that they have just lost. Why then does the mortgage modification program treat these homeowners as if they are a lost cause who will never be able to afford their home again? And why should society pay the cost of these foreclosures through higher interest rates and lower home prices when a government solution could cost less?