A record percentage of Americans are now late in paying their mortgages, according to the Mortgage Bankers Association.
On Thursday, the MBA said 9.64 percent of all loans were in delinquency in the third quarter. This is up from a record 9.24 percent in the second quarter and up from 6.99 percent only a year ago.
Although most economists believe the recession ended this summer, MBA chief economist Jay Brinkmann says job losses are the main reason for the deteriorating performance in mortgage payments.
“Job losses continue to increase and drive up delinquencies and foreclosures, because mortgages are paid with paychecks, not percentage point increases in the GDP [gross domestic product],” he said in a statement.
The rising level of delinquencies and foreclosures represents a threat to the economic recovery, says economist Richard DeKaser of Woodley Park Research in Washington. Problems in the housing market is one reason the Federal Reserve continues to hold short-term interest rates low, he notes. It’s likely the problems will continue into next year, he says.
“Generally speaking, we usually see credit-market problems lag the economic fundamentals by up to a year,” says Mr. DeKaser.
Two years ago, America’s foreclosure problem started with the collapse of the subprime loan sector, in which loans were made to people with less-than-stellar credit. Now, the largest increase is coming from prime fixed-rate loans – made to people who have had good credit ratings in the past, the MBA reports. One-third of all new foreclosures were on these loans, and 44 percent of the quarterly increase came on these loans. The MBA, in its press release, said it expects the foreclosure rate on these kinds of loans to increase.
The bulk of the foreclosure problem continues to be in states that were already hit hard: Florida, California, Arizona, and Nevada. These four states had 43 percent of all foreclosures initiated in the third quarter, and 37 percent of the nation’s prime fixed-rate loan foreclosure starts. At the end of October, 25 percent of all the mortgages in Florida were at least one payment overdue or in foreclosure.
Foreclosure rates are also increasing on loans backed by the Federal Housing Administration, the MBA says. There has been a huge surge in FHA lending in the past year, but the MBA said it assumed those new loans were not defaulting. The FHA has said recently that its losses are mounting, absorbing its reserves.
The bad news about mortgages comes when the long decline in home prices is finally showing signs of abating. For example, DataQuick, a California housing research firm, recently reported that home sales in southern California rose in October and home prices there fell by the smallest amount in two years.
If home prices do stabilize, this would help to buoy homeowners who are considering whether to give up on making their home payments because their homes are declining in value.
“There have been some encouraging signs on the home-price front,” says DeKaser. “This may help lenders loosen their purse strings as they become less fearful of declining prices.”
In an effort to bolster the housing market, the Federal Reserve has purchased some $1.25 trillion in mortgages. The Fed plans to phase out this program by the end of March, but DeKaser hopes it will reconsider in the face of this new data. “It’s given the housing market a lot of buoyancy,” he says of the program.
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