Troubled Mortgages Hit Record High
Problem Shifts From Subprime Loans to Jobless Homeowners

By Renae Merle
Washington Post Staff Writer
Friday, August 21, 2009

The proportion of homeowners delinquent on their mortgage or in foreclosure rose to its highest levels in at least four decades, according to industry data released Thursday, despite extensive government efforts to help borrowers and signs that the economy is starting to heal.

The problem has shifted from the subprime loans that helped spark the foreclosure crisis to borrowers driven into delinquency by unemployment, according to the Mortgage Bankers Association, which issued the survey. The recession's impact on the market could send foreclosure rates up through the end of next year, said Jay Brinkmann, the group's chief economist.

"It is unlikely we will see meaningful reductions in the foreclosure and delinquency rates until the employment situation improves," he said.

About 9.24 percent of borrowers were delinquent on their mortgage during the second quarter, according to the survey, and 4.3 percent more were somewhere in the foreclosure process. Overall, one in eight, or 13.16 percent, of mortgage loans were delinquent or in the foreclosure process during the quarter, according to the group.

That is the highest level ever recorded by the survey, which has been conducted since 1972, and breaks the high mark set during the first quarter. It is up from about 9 percent during the second quarter of 2008.

"I think these numbers reflect the gap between the number of modifications that have been done and the need that still exists," said Charlene Crowell, a spokeswoman for the Center for Responsible Lending. "Until that gap is closed, the housing market will continue to suffer."

More than half the mortgages in the foreclosure process during the second quarter were prime loans, which are traditionally considered safer and make up the bulk of the mortgages outstanding in the country. Subprime loans are still a significant portion of the problem, but their impact has been shrinking as the recession and rising unemployment have taken over as a driving force in the foreclosure crisis, Brinkmann said.

The majority of the problem remains in the Sun Belt states like California and Florida, which accounted for about 35 percent of the foreclosures started during the second quarter.

The problem is less severe in the Washington region. About 10 percent of borrowers in the District were delinquent or in the foreclosure process during the second quarter, compared with 6.6 percent a year earlier, according to the industry data. In Virginia, 9 percent of borrowers were in distress, compared with 6.3 percent last year. Maryland had the highest delinquency rate in the region, at 12.4 percent, compared with 7.8 percent last year.

This comes as the Obama administration prods lenders to do more to help borrowers under the federal Making Home Affordable program. The prevention program pays lenders to lower borrowers' mortgage payments. It has helped more than 200,000 borrowers since it started in March, but the administration is aiming to reach 500,000 by Nov. 1.

Homeowners have complained that it remains a frustrating and time-consuming ordeal to get help from lenders. There is sometimes confusion even within the banks about what kind of help is available. Lenders have said they have hired more staff and are working through the backlog of borrowers in need of help.

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