Lenders Say Unemployment and Mortgage Refinancing Don't Mix

Last week's bit of unwelcome news: Michigan's unemployment rate has shot up to 12.6 percent in March. At least that's the official unemployment rate. The unofficial unemployment rate (which includes everyone who has stopped looking for a job, or who is working part-time instead of full-time, or who gave up and went back to school, etc.) is somewhere around 20 percent, or maybe higher.

Twenty percent unemployment is starting to sound a lot like the Great Depression's 25 percent unemployment. The only good news is that what's happened to Michigan isn't happening anywhere else. Or, is it?

Well, you wouldn't want to be looking for a job in Oregon. The unemployment rate rose from 10.7 percent in February to 12.1 percent in March, the biggest jump in the country. South Carolina's unemployment rate is now 11.4 percent (are they taking stimulus yet?); it's 11.2 percent in California, 10.8 percent in North Carolina, 10.5 percent in Rhode Island, 10.4 percent in Nevada, and 10 percent in Indiana. A bunch of other states, including Ohio, Kentucky, Tennessee, Mississippi, Georgia and Florida are all have unemployment rates hovering just below the double-digit threshhold. (CNN's interactive unemployment map shows each state's level of unemployment.)

It's no coincidence that the number of foreclosures have started to shoot up again. The major lenders put their foreclosure programs on hold in January and February in order to see what kind of housing plan President Obama would put forward in March. Since then, lenders have been assessing who can refinance or who can be helped with a loan modification.

Here's some more unwelcome news: If you're out of a job, you're no longer eligible for a refinance or a loan modification. Lenders are looking at the growing backlog of delinquent mortgages and are starting to pull the plug. Foreclosures jumped 46 percent in March (over March 2008), to the highest rate in history.

The lenders' reaction all comes down to basics: If you don't have a job, you might be able to string it along for awhile, making your payments. But eventually, if you're unemployed long enough, your money will run out. And once you drain your reserves, you'll stop making your mortgage payment.

Which is why the number of foreclosures can and will continue to grow and why lenders have clearly decided to take their medicine now, so they can get back to business (read: profitability and fat paychecks) as quickly as possible.