Foreclosure rates up big in December

NEW YORK (CNNMoney.com) -- Americans continue having difficulties paying their mortgage obligations, with December foreclosure rates above the 100,000 mark for the fifth straight month.

The number of homeowners entering into some stage of the foreclosure process in December was 109,652, down 9 percent from November but up 35 percent from December 2005, according to RealtyTrac.

Adjustable-rate mortgages, especially subprime ARMs, continue to drive the spike in foreclosures: many of those loans are due to reset in 2007, and many of the loans written in 2006 are performing less well than in previous years.

"The combination of slower home sales and rising interest rates on ARMs continues to drive foreclosures at significantly higher numbers than a year ago," said James J. Saccacio, chief executive officer of RealtyTrac.

Other circumstances are involved. One is that the housing market turned, removing one avenue of escape for some homeowners facing foreclosure. "People would be reselling their homes if they got into trouble," says Rick Sharga, VP of marketing for RealtyTrac.

When they can't sell at or above what they owe, they may go into delinquency instead.

Another contributor is that some lenders tried to maintain business in a slower market. To do that, some relaxed their underwriting standards, approving more marginal borrowers for loans.

Interest rates were also higher for the year, putting additional strain on borrowers. Doug Duncan, chief economist for the Mortgage Bankers Association, estimates that $500 billion to $800 billion in loans outstanding went to borrowers who may face difficulties.

"Some of that," Duncan says, "would go into foreclosure."

A sustained increase in the number of foreclosures could accentuate the decline in the housing market, according to Duncan. "It could take longer to work the inventory down," he says.

Overall, however, Duncan is optimistic that the pain will be minimal. He expects the economy to keep adding jobs through the rest of the year and for mortgage rates to vary little from around 6.2 percent for a 30-year fixed mortgage.

Colorado recorded the highest foreclosure rate in the nation, one for every 376 households. In sheer numbers, Texas led the nation with more than 14,000 households entering into some stage of foreclosure.