Where the Wolf Comes Knocking

These areas have seen home prices slip from their soaring highs over the past year, but homeowners do not seem to be facing economic crises, analysts said. The District, Maryland and Virginia, with rapid job growth and relatively low unemployment, had delinquency and foreclosure rates that were less than the national rates, the report showed.

For those living in economically hard-hit areas, including the Gulf states and the industrial heartland, where the auto industry is still a dominant force, getting a loan from banks that specialize in "subprime," or risky, mortgages was not an investment play or a way to get into an expensive home. It was often a matter of keeping families afloat as money got tight.

After hurricanes Katrina and Rita hit the coast in 2005, "people took lines of credit for household expenses, people took on additional debt to maintain their businesses. They needed cash to keep on living," said Andrew D. Kopplin, executive director of the Louisiana Recovery Authority. "Struggling under one note is tough. Struggling under two notes is impossible. But that's what they face."

Michigan has lost nearly 300,000 manufacturing jobs since 1999, with about half of those in the auto industry, state officials said. And, while the rest of the country was recovering from the recession of 2001, Michigan's economy sank deeper into trouble.

The loss of auto-related jobs "has been just devastating to our housing market," said Dana Johnson, chief economist at Comerica Bank. "In other parts of the country, prices raced ahead of incomes. In Michigan, incomes fell away from housing prices."

Now, as the market for the riskiest types of loans collapses, the homeowners holding such mortgages are the most likely to lose their homes, economists said.

Whether the most troubled states are outliers or a sign of what is to come for the rest of the country will depend on whether the nation's deepening housing slump leads to broad job losses, analysts said.

While home-building and related industries are likely to shed more workers this year, most economists, including those at the Federal Reserve, have forecast that the economy will keep growing, albeit sluggishly, propelled by job growth in health care, education, finance and other services.

There was little doubt, however, than an influx of homes from foreclosures would have an impact on housing prices, which are already down.

Analysts at Lehman Brothers, which is to release a report on housing this week, said that it would take several months for the rising number of foreclosures to translate into a higher supply of homes on the market. Their early estimates show that the inventory of homes may rise by 300,000 in 2008 and 400,000 in 2009.

That represents only a small portion of the 7.5 million homes that are bought and sold every year, but analysts say it is enough to add psychological pressure in an already nervous housing market. Moreover, the added inventory could have a disproportionate impact in some markets where supply already exceeds demand.

"Inventory levels already are at record highs," said Michelle Meyer, a Lehman Brothers economist. "So if you add to the large supply of homes, the market will take longer to correct." Meanwhile, some banks and other institutions may have to bear the pain of the meltdown in subprime mortgages.

The government-chartered Fannie Mae and Freddie Mac, two of the nation's largest investors in mortgages traded on the bond market, have limited their bets in the subprime category so that they face only a remote possibility of significant losses, said Corinne Russell, spokeswoman for the Office of Federal Housing Enterprise Oversight, a regulatory agency.

Housing and Urban Development Secretary Alphonso Jackson yesterday called on bankers to go easy on U.S. subprime mortgage borrowers who are having trouble making their payments.

Jackson told members of the House Financial Services Committee at a hearing, "We don't have the powers to dictate to them what they should do, but we are doing everything in our power."