from MW:
CHICAGO (MarketWatch) -- Job losses caused more Americans to fall behind on their mortgage payments in the third quarter, leading to a record 14.41% of loans either in foreclosure or with at least one payment past due, the Mortgage Bankers Association's chief economist said Thursday.
"Despite the recession ending in mid-summer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP," said Jay Brinkmann, chief economist of the MBA, in a news release. "Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07% to 1.42%." Delinquency and foreclosure rates are expected to continue worsening before improving, he said. The employment picture is unlikely to improve until sometime next year, and even then jobs will grow at a slow pace.
"Perhaps more importantly, there is no reason to expect that when the economy begins to add more jobs, those jobs will be in areas with the biggest excess housing inventory and the highest delinquency rates," he said.
About 4 million mortgage loans are 90 days or more past due or in foreclosure, Brinkmann said. That compares with 3.9 million new and previously occupied homes now for sale, he said, adding that there is likely overlap between the numbers.
"The ultimate resolution of these seriously delinquent loans will put added pressure on the hardest-hit sections of the country," he said.
The delinquency rate for mortgage loans on one- to four-unit residential properties rose to a seasonally adjusted 9.64% of all loans outstanding at the end of the third quarter, up from 9.24% in the second quarter and 6.99% a year ago, according to the MBA's quarterly delinquency survey, released Thursday. That is the highest level of delinquencies on record, with data dating back to 1972.
Also breaking a record was the percentage of loans in the foreclosure process: At the end of the third quarter, that number was 4.47%, up from 4.3% in the second quarter and 2.97% a year ago.
Foreclosure actions were started on 1.42% of all mortgage loans outstanding at the end of the third quarter, up from 1.36% in the second quarter and 1.07% a year ago; the rate of foreclosure starts also set a new record.
The MBA survey covers about 44.5 million one- to four- unit residential properties, representing about 85% of all first-lien residential mortgages outstanding in the country.
Prime borrowers struggle
"Prime fixed-rate loans continue to represent the largest share of foreclosures started and the biggest driver of the increase in foreclosures," Brinkmann said. According to the survey results, 33% of foreclosures started in the third quarter were on prime fixed-rate loans.The problems seen with this loan type are generally tied to the steady climb in unemployment -- even if there is a delayed reaction after a job is lost.
With prime fixed-rate mortgages, "when someone loses a job, chances are they don't go into default immediately" because these borrowers typically have reserves they can tap, he said. But reserves won't last forever, and the borrower's ability to keep that home depends on finding another job before his or her financial cushion runs out.
Also continuing to deteriorate is the performance of prime adjustable-rate mortgages, including pay-option ARMs, he said. Brinkmann noted, however, that pay-option ARMs have had some of the highest modification rates.
Meanwhile, foreclosures started on subprime fixed-rate and subprime adjustable-rate loans actually decreased, he said.
Four states continue to drive up the national foreclosure rate: Florida, California, Arizona and Nevada had 43% of all foreclosures started in the third quarter, down just slightly from 44% the previous quarter, according to the report.
FHA loans falter
The foreclosure rate of loans insured by the Federal Housing Administration also increased in the third quarter, even though there also has been a large jump in the number of FHA loans outstanding, he said."The number of FHA loans outstanding has increased by about 1.1 million over the last year. This increase in the denominator depresses the delinquency and foreclosure percentages. If we assume these newly-originated loans are not the ones defaulting and remove the big denominator increase from the calculation results, the foreclosure rate would be 1.76% rather than 1.31% reported," he said in the release.
The FHA has been dealing with losses in its capital reserve fund, due to problems with mortgages that originated before this year. Read about changes the FHA is considering to manage risk.
But newly originated FHA loans are not likely to be at as much of risk as those made in previous years, Brinkmann said. The new loans are likely of better quality, partly because seller-paid down-payment assistance is no longer available for FHA-backed mortgages; the assistance has been blamed for contributing to some of the problems, he said.
Also, loans being originated today are being done at what is believed to be at or near the bottom of the home-price cycle, he added. While home-price drops may still be ahead, they're unlikely to be of the magnitude seen in the past, Brinkmann said.
And it's possible that if, in fact, unemployment is nearing its peak, new borrowers today are more likely to hang on to their jobs -- and make their mortgage payments.
"Those with jobs now may be the most likely to keep their jobs," he said in an interview.
