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Foreclosure Rate Hits All-Time Record

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By MARTIN CRUTSINGER The Associated Press

Published: September 7, 2007

WASHINGTON - Homeowners struggling to deal with sharp increases in their adjustable mortgage payments got hit with a record number of foreclosure notices in the spring as the crisis in subprime lending intensified.

The problem was the most severe in the industrial Midwest and former housing boom areas such as Florida and California. But economists warned the situation will get worse in coming months as an estimated 2 million adjustable rate mortgages taken out with low introductory interest rates reset to much higher rates.

The crisis is most severe in subprime mortgages, loans to borrowers with weak credit. But it is spreading to other mortgage types, according to a quarterly report released Thursday by the Mortgage Bankers Association.

The report shows the number of homeowners who got foreclosure notices in the April-June quarter hit an all-time high of 0.65 percent, up from 0.58 percent in the first three months of the year. It is the third consecutive quarter that a new record has been set.

Rising defaults in subprime mortgages have roiled global financial markets in recent weeks, sending stock prices on a roller-coaster ride as investors wonder which big bank or hedge fund will report huge losses from subprime mortgages that were bundled into securities and resold to investors.

President Bush and Federal Reserve Chairman Ben Bernanke tried to calm fears last week. Bernanke said the Fed would 'act as needed' to limit adverse economic effects from the market turmoil.

Sen. Charles Schumer, D-N.Y., Joint Economic Committee chairman, said the new mortgage delinquency numbers are a wake-up call to Congress and the administration that urgent help is needed. He seeks $300 million in federal support for nonprofit mortgage counseling groups he said were 'the best defense against the coming storm of foreclosures.'

Economists warn the worst housing slump in 16 years and turbulence in financial markets from a resulting serious credit squeeze could push the economy into recession as more borrowers fall into default, dumping more homes onto a glutted market.

'You have a lethal combination of higher mortgage payments, lower house prices, a weaker job market and more cautious lenders,' said Mark Zandi, chief economist at Moody's Economy.com.

He said defaults won't peak until next year, reflecting a wave mortgages now resetting from low 'teaser' rates. The resets in many cases can mean an extra $250 to $300 in monthly payments on a typical $1,200 monthly mortgage.

The MBA survey found the delinquency rate, which tracks people behind in payments but not in foreclosure, rose sharply in the spring to 5.12 percent of all loans, the highest in five years and up from 4.84 percent in the first quarter.

The delinquency rate for subprime loans rose to 14.82 percent, up from 13.77 percent in the first quarter. It was the second-highest subprime delinquency rate on record after a 14.96 percent rate in the spring of 2002. The delinquency rate for prime loans to borrowers with good credit rose to 2.73 percent, up from the first quarter's 2.58 percent.

Doug Duncan, MBA chief economist, said the worsening performance stems from heavy job losses in Ohio, Michigan and Indiana - hard hit by auto industry and other manufacturing losses - and collapse of once-booming housing markets in Florida, California, Nevada and Arizona.

Analysts said housing market problems reflect, in part, speculators leaving mortgages they can't afford. During the boom, they hoped to take advantage of rapidly rising prices by quickly reselling.

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