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.
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Foreclosure Rate Hits Historic High
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Many borrowers fall into the subprime category because of a one-time setback such as job loss or illness, Youngblood said. But with time, they repair their finances, which means that not everyone who is missing payments will necessarily lose their homes. "It's wrong to assume that once you're a subprime borrower, you're always a subprime borrower," he said.
One major issue is what happens with adjustable-rate mortgages. These mortgages gained popularity during the housing boom, especially with subprime buyers. They often have low introductory rates that later spike, sometimes doubling a monthly mortgage payment and creating payment shock.
A study released this year by First American CoreLogic concluded that the jumps in monthly payments would result in 1.1 million foreclosures in the next six to seven years, assuming average home prices stay the same as they were in December.
The study, which analyzed 8.4 million loans made from 2004 to 2006, said that while the fallout will hurt the affected borrowers, it most likely would not break the economy.
As the problems deepened over recent months, legislators and regulators have weighed in with proposals on how to curb the damage.
Democratic lawmakers have blasted the Federal Reserve for a "pattern of neglect" that fostered the crisis. Yesterday, the Fed invited consumer groups, lenders and other experts to weigh in on how it can rewrite its rules to prevent predatory lending.
"We must determine how we can weed out those abuses while also preserving incentives for responsible lenders" so that risky borrowers still have a chance of homeownership, said Randall S. Kroszner, one of the board's governors.
The board focused on whether to crack down on the use of prepayment penalties and loans that require little or no documentation of salaries. It solicited opinions on whether escrows for taxes and insurance should be required. It also questioned whether loan officers should be required to make sure potential borrowers are capable of paying back the loans they are applying for.
No consensus was reached on any of the topics, and Fed officials declined to comment on yesterday's foreclosure numbers.
