Record foreclosures in fourth quarter
Mortgage Bankers Association reports a spike in loans entering into some stage of foreclosure. Number of subprime borrowers late with payments is on the rise.
NEW YORK (CNNMoney.com) -- A record high number of homeowners faced a serious threat of foreclosure during the fourth quarter of 2006, according to a survey released Tuesday by the Mortgage Bankers Association.
The percentage of all outstanding loans that entered the foreclosure process was 0.54, 0.08 percentage points higher than the third quarter and the highest ever recorded in the survey. The previous record was 0.50 in the second quarter of 2002.
Troubled mortgage holders rose across the board: The delinquency rate for one-to-four-family houses rose to 4.95 percent of all loans outstanding compared with 4.67 during the third quarter and 4.70 percent 12 months earlier.
All major loan types contributed to the increase, but subprimes and FHA loans were up the most.
The report comes amid a flurry of media coverage detailing a crisis in the subprime financing industry, as a succession of lenders have announced problems with non-performing loans.
Some 7.78 percent of nearly 6 million subprime loans were seriously delinquent (90 days or more late), up from 6.52 percent 12 months ago. That's still down, however, from levels of 2002, when 11.49 percent of all subprimes were seriously delinquent.
Doug Duncan, the MBA's chief economist called subprime borrowers "more susceptible" to higher interest rates and the slowing of home price appreciation, including some outright market declines, that the nation experienced this year.
The MBA asserts that delinquency and foreclosure rates should level off as the housing market regains strength, which Duncan expects to happen toward the end of 2007.
Meanwhile, industry experts are watching the subprime delinquency numbers closely. During the quarter, 13.33 percent of subprime loan borrowers were late with payments. That's up from 12.56 a quarter earlier. Subprime adjustable rate mortgages (ARMs) performed even worse; delinquencies increased by 1.22 percentage points to 14.44 percent.
Many subprime borrowers have difficulty making payments when their loans reset at fully indexed rates, up from their original low "teaser" rates. Many loans written during the red-hot 2004 and 2005 years were subprime ARMs and they have started to reset at those higher rates.
The states hardest hit by delinquencies clustered in the South and Midwest. Mississippi, at 10.64 percent, led all states, followed by Louisiana (9.10 percent) and Michigan (7.87 percent).
More foreclosure proceedings were initiated in Ohio (3.38 percent) than any other state. Indiana (2.97 percent) and Michigan (2.39 percent) also recorded high foreclosure rates.
Regionally, the North Central region had an overall delinquency rate of 5.68 percent, the South 5.71 percent, the Northeast 4.59 percent and the West 3.18 percent.
Foreclosures starts were highest in the North Central region, at 2.02 percent. The rate in the Northeast was 1.16 percent, the South was 1.08 percent and the West just 0.63 percent.
In looking at the bigger economic picture, the MBA anticipates a recovery in the housing market. It projects continued low interest rates throughout 2007 and into 2008 as well as solid job growth with unemployment rates inching up to 4.8 percent for the year.
The MBA expects those positive economic trends to buoy housing markets and minimize the fallout from the spike in subprime delinquencies and foreclosures.