Mortgage Troubles Rise to Record Level
Saturday, December 6, 2008
Despite government and industry efforts, the number of homeowners falling behind on their mortgages or already in foreclosure climbed during the third quarter and is poised to accelerate as the country's recession deepens, according to industry data released yesterday.
About 6.99 percent of mortgage loans were delinquent during the quarter, according to the survey by the Mortgage Bankers Association, an industry group. Another 2.97 percent were in the foreclosure process -- the highest level since the survey was established in 1979. Taken together, about 10 percent, or one in 10, home mortgages are now in some form of distress.
More than two years into a housing slump, the country's delinquency and foreclosure rates have risen steadily as home values have plummeted and borrowers saddled with risky mortgages have fallen behind in their payments. Now the recession and job losses are increasingly driving delinquencies, according the industry group.
"We have not gone into past recessions with the housing market as weak as it is now, so it is likely that a much higher percentage of delinquencies caused by job losses will go to foreclosure than we have seen in the past," said Jay Brinkmann, chief economist for the mortgage bankers group.
At the current rate, lenders will start foreclosure actions against 2.2 million homes this year, Brinkmann said.
Pointing to a Labor Department report yesterday that U.S. employers shed 533,000 jobs last month, far more than expected by economists, Brinkmann said a recovery of the housing sector was difficult to predict and that the 2009 outlook has dimmed.
"I didn't expect a drop of 500,000 this morning," he said. "Given that, we have to say we don't know how bad it's going to be getting in the next couple of months. . . . First the economy needs to recover, then we will see the mortgage market be brought along with that."
The figures were striking in the face of sustained efforts by government regulators and lenders to stem the foreclosure crisis and keep people in their homes. Lenders are modifying more troubled loans, but job losses can make it difficult, said Suzanne Boas, president of Consumer Credit Counseling Service of Greater Atlanta. "That is the major impediment to modifications because mortgage lenders need to be assured that there is going to be a source of income," she said.
But it also reflects the inadequacy of voluntary industry efforts to help homeowners, said Alan White, an assistant professor at Valparaiso University School of Law in Indiana, who has studied the mortgage crisis. The modifications are not significant enough to prevent borrowers from defaulting again. Moreover, lenders are overwhelmed and the foreclosures represent homeowners they did not reach, he said.
The percentage of borrowers entering the foreclosure process during the quarter stayed stable at 1.07 percent, compared with 1.08 percent during the second quarter and 0.78 percent during the corresponding period a year ago.
But that does not indicate that things are improving, economists said. The percentage of mortgages 90 days or more delinquent, but not yet in foreclosure, has ballooned as some states institute foreclosure moratoriums or otherwise make it more difficult for lenders to foreclose. The seriously delinquent rate reached 2.2 percent during the quarter, up from 1.83 percent during the second quarter and 1.26 percent during the same period a year ago.
Mortgages in foreclosure rose to 2.97 percent during the third quarter compared with 2.75 percent the previous quarter. That was up from 1.69 percent during the third quarter of 2007.
Defaults remain highest for adjustable-rate mortgages -- loans that begin with low interest rates then adjust to higher payments, sending some homeowners into "payment shock." Among adjustable mortgages, about 20.65 percent of subprime loans -- those to borrowers with credit or other problems -- were in foreclosure during the third quarter, up from 10.38 percent a year ago. About 4.83 percent of prime adjustable-rate mortgages were in foreclosure during that period, up from 2.04 percent.
The pain is concentrated in a few states, where home prices have soared most sharply and there is a glut of homes on the market because of overbuilding. California and Florida accounted for a third of mortgages that were in foreclosure or 90 days delinquent.
That is likely to get worse as those states struggle with growing unemployment rates, Brinkmann said. Over the past year, Florida lost 156,200 jobs and California lost 101,300.
Delinquency rates in the Washington region are below the national average. In the District, 3.3 percent of loans included in the survey were seriously delinquent or in foreclosure, up from 1.62 percent during the same period a year ago. About 4.33 percent of mortgages in Maryland were in similar trouble, up from 1.91 percent. The rate locally was lowest in Virginia where 3.08 percent of loans were either 90 days delinquent or in foreclosure, up from 1.61 percent a year ago.