By Dina ElBoghdady
Washington Post Staff Writer
Saturday, September 6, 2008

The share of mortgage borrowers who fell behind on their payments or lapsed into foreclosure climbed to a record 9 percent in the second quarter as problems spread to borrowers with good credit, the Mortgage Bankers Association reported yesterday.

The pain is concentrated in a few states, most notably California and Florida, which account for one in five outstanding mortgages. About 39 percent of all new foreclosures in the quarter took place in those two states, which had some of the frothiest markets during the housing boom. Most other states saw little change in new foreclosure filings, and a few -- Texas, Massachusetts and Maryland -- experienced improvements, according to Jay Brinkmann, the group's chief economist.

Until the supply of homes in California and Florida is more in line with demand, "we are unlikely to see a national turnaround" in the housing market," Brinkmann said. "These two states have a disproportionate effect on the numbers."

Of the roughly 45 million mortgages covered in the group's survey, 1.08 percent entered foreclosure in the second quarter, up from 0.59 percent the same time last year.

Borrowers generally enter foreclosure when they are 90 days behind on payments. In some states, the process can take a year or more to run its course, which gives delinquent borrowers time to negotiate more manageable payment terms if possible.

The survey does not show how many borrowers who missed payments actually lost their homes.

But it does show that 6.41 percent of borrowers are not paying on time, up from 6.35 percent the previous quarter and 5.12 percent a year earlier.

Most of that increase was because of borrowers who once had good credit. The mortgage crisis began with subprime borrowers -- people with poor credit or little cash -- but this new report shows that it has tripped up prime borrowers, too. The delinquency rate on prime loans rose to 3.93 percent in the quarter from 2.73 percent a year earlier.

As for new foreclosures, 36 percent were subprime loans and 23 percent were prime. For prime borrowers, the biggest problems surfaced among adjustable-rate loans with low teaser rates that later spiked. In some cases, borrowers paid only interest on those loans or they could pick the size of their monthly payment.

Again, Californians and Floridians were heavy users of both the troubled prime and subprime adjustable-rate mortgages.

Barry Glassman, a financial planner in McLean, said prime borrowers were expected to encounter problems as the credit crisis dragged on.

"It's no surprise that the first people who were going to foreclose were the subprime borrowers, who had no reserves or access to additional capital," Glassman said. "The prime borrowers had the means to delay the defaults. . . . They had good enough credit so they had places from which to borrow."