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Mortgage delinquency at record high, but borrowers falling behind at slower rate

By Renae Merle
Washington Post Staff Writer
Wednesday, May 19, 2010; 10:36 PM

The number of U.S. homeowners who are behind on their mortgages rose to a record level in the first quarter, according to industry data released Wednesday that also included tentative signs that the nation's foreclosure crisis may be starting to ease.

The increase in mortgage delinquency was a surprising and unwelcome sign for economists expecting the recent improvements in the economy to translate into fewer homeowners falling into trouble.

On a seasonally adjusted basis, about 10 percent of borrowers were delinquent on their mortgages during the first three months of this year -- a record, according to the survey by the Mortgage Bankers Association. That is up from about 9.1 percent during the same period last year and 9.5 percent during the fourth quarter of 2009.

However, excluding those seasonal adjustments, borrowers were falling behind at a slower rate, said Jay Brinkmann, the group's chief economist. Borrowers who had missed one mortgage payment, for example, fell to 3.1 percent during the first quarter on a non-seasonally adjusted basis, compared with about 3.3 percent during the same period last year.

"We are in extraordinary times. How much of the change is being driven by seasonal factors or the fundamental changes in the trend is unclear," Brinkmann said. "If mortgage delinquencies are not yet clearly improving, it also appears they are not getting worse. However, a bad situation that is not getting worse is still bad."

But that does little to offset the growing backlog of borrowers who are seriously delinquent on their mortgages and who have little hope of catching up on their payments. About 68 percent of delinquent borrowers have missed three or more payments or are in the foreclosure process.

About 4.6 percent of outstanding mortgages were in foreclosure proceedings -- meaning the bank had started to foreclose on the home, but not yet taken it back, according to the survey. That is the highest level in the history of the survey, and compares with nearly 3.9 percent during the same period last year and 4.6 percent in the previous quarter.

The foreclosure problem worsened in the Washington region, the survey said. The number of borrowers who were delinquent or in foreclosure in the District rose to 10.4 percent during the first quarter, compared with 9 percent during the same period in 2009.

In Virginia, 9.4 percent of borrowers were in trouble with their mortgages, compared with 8.3 percent the year before. Maryland had the region's highest proportion of borrowers in delinquency or foreclosure, at 13.8 percent in the first quarter, up from 11.3 percent a year earlier.

Improvements in the economy have helped some borrowers stay out of trouble, but banks are pushing many homeowners further into the foreclosure process and moving to take their homes, said Mary Hunter, director of the housing counseling program at the Housing Initiative Partnership in Hyattsville. "The people who have fallen into delinquency has slowed down, but the other side of the process is speeding up," she said.

Foreclosures remain an acute problem despite a massive federal government program that pays lenders to lower borrowers' payments. The year-old program has helped about 300,000 borrowers secure permanent loan modifications. But nearly as many borrowers who signed up for the program have lost the mortgage relief -- usually because they did not submit all of the documents required to prove they qualified for the help or could not keep up with the lower payments.

Meanwhile, the number of people applying for mortgages fell again last week, according to a weekly Mortgage Bankers Association survey. The index that tracks mortgage applications for purchasing a home fell 1.5 percent to the lowest level since 1997. Applications have fallen nearly 20 percent in the past month after the expiration of a home buyers' tax credit that helped drive up sales earlier this year.

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