By Mark Huffman
ConsumerAffairs.com
November 19, 2009
Amid
encouraging signs of a housing and overall economic turnaround, danger
signals continue to flash. Among them is a report from the nation's
mortgage bankers showing homeowners continue to fall behind on their
payments.
At the end of the third quarter, the Mortgage Bankers Association says 9.64 percent of all outstanding mortgage loans were delinquent, a record high. The records are based on MBA data dating back to 1972.
MBA defines delinquent mortgages as those where at least one payment is past due. However, it doesn't include loans that have begun the foreclosure process. Foreclosures are also near an all-time high.
The percentage of loans in the foreclosure process at the end of the third quarter was 4.47 percent, an increase of 17 basis points from the second quarter of 2009 and 150 basis points from one year ago. The combined percentage of loans in foreclosure or at least one payment past due was 14.41 percent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.
Increases Driven by Prime and FHA Loans
"Despite the recession ending in mid-summer, the decline in mortgage performance continues," said Jay Brinkmann, MBA's Chief Economist. "Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP. 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 percent to 1.42 percent."
While subprime loans started the mortgage meltdown, it's prime fixed-rate loans that continue to drive it. MBA says prime loans - made to borrowers with good credit - continue to represent the largest share of foreclosures started and the biggest driver of the increase in foreclosures.
The group noted that 33 percent of foreclosures started in the third quarter were on prime fixed-rate and loans and those loans were 44 percent of the quarterly increase in foreclosures. The foreclosure numbers for prime fixed-rate loans will get worse, MBA predicts, because those loans represented 54 percent of the quarterly increase in loans 90 days or more past due but not yet in foreclosure.
"The performance of prime adjustable rate loans, which include pay-option ARMs in the MBA survey, continue to deteriorate with the foreclosure rate on those loans for the first time exceeding the rate for subprime fixed-rate loans," Brinkmann said. "In contrast, both subprime fixed-rate and subprime adjustable rate loans saw decreases in foreclosures."
FHA Loans Surge
Perhaps more disturbing is the fact that the foreclosure rate on FHA loans also increased, despite having a large increase in the number of FHA-insured loans outstanding. The number of FHA loans outstanding has increased by about 1.1 million over the last year, often taking the place of subprime mortgages that are no longer available.
FHA loans are designed to help first time buyers get into the housing market. Unlike conventional loans, they require small down payments - often less than five percent.
Once again the states of Florida, California, Arizona and Nevada have a disproportionate share of the mortgage problems. According to the report, they had 43 percent of all foreclosures started in the third quarter, down only slightly from 44 percent both last quarter and the third quarter last year. They had 37 percent of the nation's prime fixed-rate loan foreclosure starts and 67 percent of the prime ARM foreclosure starts. As of the end of September, 25 percent of the mortgages in Florida were at least one payment past due or in foreclosure.
"The outlook is that delinquency rates and foreclosure rates will continue to worsen before they improve," Brinkmann said.
