Mortgage Foreclosures Set a Record
The turmoil in the mortgage market poses multiple threats, the MBA says. Foreclosures are likely to rise for at least another year. A bigger supply of homes in foreclosure would weaken prices in many areas. And people behind on loans will find it
With a warning that the worst is yet to come, the Mortgage Bankers Association said last week that lenders began foreclosure proceedings on a record number of homes this spring.
The turmoil in the mortgage market poses multiple threats, the MBA says. Foreclosures are likely to rise for at least another year. A bigger supply of homes in foreclosure would weaken prices in many areas. And people behind on loans will find it harder to refinance.
STATE BY STATE CHART: Foreclosure and delinquency rates
SUBPRIME LOANS: State by state foreclosures, delinquencies
"There have been dramatic changes in the mortgage market," says Doug Duncan, the MBA's chief economist. "We do not yet believe we have seen the peak."
A rise in late payments in the second quarter was again driven by borrowers with bruised credit and adjustable-rate mortgages (ARMs). Many of them can no longer afford their payments as the loans reset to higher rates. Nearly 17% of borrowers with "subprime" ARMs were behind on their payments in the second quarter, another record.
For all loan types, 5 percent of borrowers nearly 2.5 million people missed at least one payment last quarter. That's up from 4.4 percent in the same period last year.
The problems appear to be focused in seven states. Job losses in Michigan, Ohio and Indiana have depressed housing there. Those three states account for nearly 20 percent of the nation's homes in foreclosure.
And a rising number of defaults in four states California, Nevada, Florida and Arizona is largely why the U.S. delinquency rate is up. As home prices there fall, more people are in the upside-down position of owing more on their loans than their homes are worth.
California accounted for more than 17 percent of the subprime ARMs in the country and for more than 19% of the new foreclosures in the second quarter, the MBA says.
It's not just that lenders have raised the credit scores and home equity they demand. They've also dropped many of the loan products that borrowers had used to buy homes.
The industry has relied on Wall Street to buy risky loans, packaged and sold as bonds. But investors, burned by the spike in loan defaults, have soured on mortgages. Dozens of lenders have folded, sought bankruptcy protection or been sold since the end of last year.
The Homeownership Preservation Foundation, which runs a 24-hour hotline for homeowners in trouble (888-995-HOPE), said it took 36,000 calls in July and August more than twice as many as in the first three months of the year.
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