This June 15 Business article about historically high mortgage foreclosure rates imprecisely described the historical period involved. The Mortgage Bankers Association's National Delinquency Survey has been conducted since 1953, but the methodology has changed over the years. The percentage of U.S. mortgages entering foreclosure in the first three months of this year was the highest since 1979, not in more than 50 years.
Foreclosure Rate Hits Historic High
Friday, June 15, 2007
The percentage of U.S. mortgages entering foreclosure in the first three months of the year was the highest in more than 50 years, according to the Mortgage Bankers Association.
As the association released its numbers, the Federal Reserve held a hearing to determine whether regulators could do anything to crack down on abusive lending practices, which have exacerbated the problem
The problems arose last year as the housing market softened, driving down home prices and making it more difficult for cash-strapped borrowers to sell their homes or refinance their way out of trouble.
The most dramatic fallout took place in the subprime market, which caters to people with blemished credit or other factors that make them a risk to lenders.
Those borrowers entered foreclosure at a rate of 2.43 percent, up from 2 percent the previous quarter. The percentages seem small, but they are far above norms, particularly in a healthy economy. The concern is that the mortgage industry's troubles could damage the economy if they are not contained.
For more credit-worthy, prime borrowers, foreclosures rose slightly, to 0.25 percent, in the first quarter from 0.24 percent in the previous one.
New foreclosures for prime and subprime borrowers combined hit record highs. They rose to 0.58 percent on a seasonally adjusted basis, compared with 0.54 percent in the previous quarter and 0.41 percent a year earlier.
The high translates into about 254,591 mortgages, or one in 172 loans, the association said.
The problems weren't uniformly spread around the country. Doug Duncan, chief economist for the mortgage bankers group, said the rate of new foreclosures would have dropped had it not been for big jumps in California, Florida, Nevada and Arizona. He said high rates in Ohio, Michigan and Indiana also drove up the overall percentage of loans in foreclosure.
Some who track the industry say the worst is yet to come.
"We think we're just starting to see the tip of the iceberg," said Karen Weaver, global head of securitization research at Deutsche Bank Securities. "We believe more and more [subprime borrowers] will default, and that's a process that we think will happen over two years."
Others disagree. Among them is Michael D. Youngblood of FBR Investment Management, who said the deterioration of subprime loans has slowed significantly in the past four months. He predicts "a slow upward drift" of default rates for the next nine months, before the rates recover to current levels, absent sharply higher joblessness or interest rates.