Modifying loans may not stem foreclosures: Boston Fed

In my home state of Florida we have been hit very hard with un-employment. That has been a large part of our failing economy, along with many other factors of course. Here is an article by Kristina Cooke Kristina Cooke – posted Mon Apr 13, 12:05 pm ET

NEW YORK (Reuters) – Unemployment is a bigger reason for missed mortgage payments than high interest rates,according to a study from the Boston Federal Reserve that raises questions about President Barack Obama's plan to stem foreclosures by modifying loans.

Borrowers are more likely to default on their payments because they have lost their jobs or because the price of their homes has plummeted than because of tough terms on their mortgages, the study found.

Loan modifications are not necessarily a better deal for investors either, wrote Boston Fed economists Christopher Foote and Paul Willen, Atlanta Fed economist Kristopher Gerardi and Lorenz Goette, a professor at the University of Geneva.

Their research found that policies that directly help homeowners overcome setbacks such as losing their jobs may be more effective in 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.

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