New Mortgage Foreclosures Set Record

A home is advertised for sale at a foreclosure auction in Pasadena, Calif., in this Aug. 14, 2007 file photo. The number of homeowners receiving foreclosure notices hit a record high in the spring, driven up by problems with subprime mortgages. The Mortgage Bankers Association reported Thursday, Sept. 6, 2007 that mortgage-holders starting the foreclosure process in the April-June quarter reached 0.65 percent, marking the third consecutive quarter that this figure has set an all-time high. (AP Photo/Reed Saxon) (Reed Saxon - AP)

He said defaults will not peak until next year, reflecting a wave of introductory mortgages that are just now resetting from low "teaser" rates. Those resets can in many cases mean an extra $250 to $300 in higher monthly payments on the typical $1,200 monthly mortgage.

The MBA survey found that the delinquency rate, which tracks the number of people who are behind in their payments but have not yet entered the foreclosure process, was also up sharply during the spring. It rose to 5.12 percent of all loans, the highest level in five years and up from 4.84 percent in the first quarter.

The delinquency rate for subprime loans increased more sharply to 14.82 percent _ up from 13.77 percent _ in the first quarter. That marked the second-highest subprime delinquency rate on record after a 14.96 percent rate in the spring of 2002.

The delinquency rate for prime loans, offered to borrowers with good credit histories, also increased, but by a much smaller amount. It rose to 2.73 percent, up 2.58 percent in the first quarter.

Doug Duncan, the MBA's chief economist, said the worsening performance was the result of two major factors _ heavy job losses in the Midwest states of Ohio, Michigan and Indiana, a region hard hit by heavy losses in the auto industry and other manufacturing industries, and the collapse of previously booming housing markets in California, Florida, Nevada and Arizona.

"The percent of mortgages in Ohio that are 90 days or more past due or in foreclosure is still more than twice the national average and 1 percent of all the mortgages in Michigan had foreclosure actions started on them during the last quarter," Duncan said.

He said there were also significant problems in the neighboring states of Indiana, Illinois, Kentucky, Tennessee and Pennsylvania.

Analysts said the problems in the formerly red-hot housing markets of California, Florida, Nevada and Arizona reflected, in part, speculators walking away from mortgages they can no longer afford. They had jumped into the market during the boom, hoping to take advantage of rapidly rising prices by quickly reselling.

But now with the inventory of unsold homes at record levels, many speculators are defaulting on their mortgages. Those defaults are dumping more homes on an already glutted market.

"With so much supply out there to compete against, borrowers who can't pay their mortgages are behind the eight-ball," said Mike Larson, a real estate analyst at Weiss Research. "They can't sell to get out from under their obligations. As a result, more end up tumbling into foreclosure."

During the five-year housing boom, which ended last year, prices in the hottest areas surged as investors bid up the price of homes hoping to quickly resell them for a profit. Now with home sales falling, the inventory of unsold homes rising and prices stagnant, some speculators are choosing to default on their mortgages.

Democrats on Wednesday blamed predatory lending practices for a large part of the current problems and said they planned to introduce bills aimed at halting such practices as aggressive marketing of subprime loans to unqualified borrowers.

Federal and state banking regulators issued guidance this week encouraging lending institutions to work with borrowers to restructure loans at more favorable terms rather than foreclosing on the existing mortgages.

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On the Net:

Mortgage Bankers Association: http://www.mortgagebankers.org