A report by the Federal Reserve Bank of Richmond shows that rising unemployment, not house price decline is the most significant factor underlying mortgage foreclosures in South Carolina. The unemployment rate climbed 5.8 percentage points between March 2008 and March 2009, ending in 11.3 percent joblessness – the third highest rate in the nation. But house prices in the Palmetto state overall did not appreciate as much as they did in other areas of the Fifth District and nation, and, subsequently, have not fallen as steeply. Among other things, the Fed report examines the housing history, composition, and performance of prime and subprime mortgage loans in South Carolina and the Fifth District. (Subprime mortgages loans are those made to people with credit scores at 620 or below.)
South Carolina ranks 24 among the nation’s 50 states in its share of subprime mortgages, with subprime accounting for 10.5 percent of loans in the state compared to the national average of 11.7 percent, according to first quarter 2009 data. Although the share of subprime loans is small, they account for almost 40 percent of the loans in foreclosure. The weakening labor market is – and likely will continue to be –a major factor in the performance of mortgage loans, according to the report’s authors.
“The unemployment rate has increased more quickly and to higher levels than in other areas, “said Sonya Ravindranath Waddell, associate regional economist and one of several report authors. “If unemployment rates continue to rise and house price declines pick up, we could see greater deterioration in South Carolina’s mortgage performance and foreclosure rates.”
The Richmond Fed found some interesting variations in mortgage performance throughout South Carolina. For example, mortgage performance has been particularly weak in the Charleston area and the state’s coastal areas such as Hilton Head and Myrtle Beach – places which also experienced the steepest growth in house prices earlier in the decade. “These are also the areas with the highest percentage of interest-only mortgages, adjustable-rate mortgages, and non-occupant-owned properties,” Waddell noted.
The Richmond Fed serves the Fifth Federal Reserve District, which includes the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia. As part of the nation's central bank, we're one of 12 regional Reserve Banks that work together with the Federal Reserve's Board of Governors to strengthen the economy and our communities. We manage the nation's money supply to keep inflation low and help the economy grow. We also supervise and regulate financial institutions to help safeguard our nation's financial system and protect the integrity and efficiency of our payments system.
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