Rising Unemployment Levels Help Push Record Numbers of Homeowners Into Delinquency or Foreclosure

By Renae Merle
Washington Post Staff Writer
Friday, May 29, 2009

Rising unemployment levels helped push record numbers of homeowners into delinquency or foreclosure during the first quarter, according to industry data released yesterday.

Government efforts to cut foreclosure rates have not been enough to offset the impact of the recession on struggling borrowers, the data from the Mortgage Bankers Association showed. And borrowers once considered reliable are now helping drive the foreclosure crisis, which looks likely to extend into next year.

About 12.07 percent of mortgage loans were delinquent or in the foreclosure process during the quarter, according to a survey by the industry group. That is the highest level ever recorded by the survey, which has been conducted since 1972. It is up from about 8 percent during the first quarter of 2008.

"The increase in the foreclosure number is sobering but not unexpected," said Jay Brinkmann, the group's chief economist.

Lenders who held off while the Obama administration unveiled its foreclosure prevention program earlier this year are now working their way through a backlog of troubled loans, economists said. And the recession has become a major factor in the foreclosure crisis. For example, for the first time, prime loans, which are traditionally considered safer, represented the largest share of foreclosures during the first quarter, according to the data.

Of the loans in foreclosure during the first quarter, 49.8 percent were prime loans and 43.2 percent were subprime.

"More than anything else, this points to the impact of the recession and drops in employment on mortgage defaults," Brinkmann said. "Looking forward, it does not appear the level of mortgage defaults will begin to fall until after the employment situation begins to improve."

And it may be months before the impact of the Obama administration foreclosure prevention plan, Making Home Affordable, becomes clear, said John Taylor, president of the National Community Reinvestment Coalition. Early intervention in the housing crisis could have forestalled some of the current problems, he said. But "the problem has deepened so badly since then and become compounded by rising unemployment." .

The majority of the foreclosure problems remain centered in four states: California, Nevada, Arizona and Florida, where home prices spiked the highest and are now in freefall. They account for 56 percent of the increase in foreclosure starts.

Delinquency rates in the Washington region have also risen. In the District, 5.07 percent of loans included in the survey were seriously delinquent or in foreclosure, compared with 2.39 percent a year ago.

Locally, the rate was lowest in Virginia where 4.41 percent of loans were in trouble, up from 2.52 percent last year. It was highest in Maryland where 6.49 percent of loans were seriously delinquent or in foreclosure, up from 3.02 percent in the first quarter of 2008.

Meanwhile, the market for new homes remains weak. In April, new-home sales were flat, up 0.3 percent compared with March, to an annualized rate of 352,000 sales, according to a Commerce Department report released yesterday. But sales were down 34 percent compared with April 2008.

The market is weakest in the West, where sales fell 3.8 percent last month. Sales were unchanged in the Midwest and Northeast. In the South, the region that includes the Washington metro area, sales increased 1.9 percent.

As builders compete against a backlog of foreclosed properties on the market, median new home prices fell to $209,700 in April, compared with $246,400 a year ago.

It would take 10.1 months to sell all the homes on the market at the current rate, according to the Commerce Department figures. But that is a slight improvement, said David Crowe, chief economist for the National Association of Home Builders. The backlog has been falling as builders curtail production and there are now fewer than 300,000 new homes on the market, the smallest inventory since 2001, said Crowe.

The market should begin to show improvement soon, he said. "It won't be a significant, rapid rise, but it will be an increase, which right now, is a whole lot better than a decrease," Crowe said.

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