Mortgage loans: Record number are late

Efforts to combat foreclosure plague are falling short as the total number of delinquent mortgage loans hits 9.64%.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Les Christie, CNNMoney.com staff writer

Housing: Best recovery bets
The average home price is forecast to plummet over the next two years. But these 7 cities are predicted to post gains.
Foreclosure plague: It's spreading
Las Vegas always wins the title for worst foreclosure rate in the country. But these 5 cities have the fastest-growing foreclosure rates. And they're not the usual suspects.
Map
Where does your state rank?
Americans everywhere are feeling the recession's pain – some more than others.
Life after foreclosure
After losing their homes, these 4 families thought they'd never recover. They've found it difficult to rent and their credit is wrecked, but life is looking up.
Mortgage Rates
30 yr fixed 4.07%
15 yr fixed 3.13%
5/1 ARM 3.22%
30 yr refi 4.12%
15 yr refi 3.19%

Find personalized rates:
 

Rates provided by Bankrate.com.

NEW YORK (CNNMoney.com) -- Mortgage borrowers are still falling behind on their payments in record numbers, despite the many foreclosure prevention efforts initiated by the government and non-profits.

In the third quarter, 9.64% of all mortgage loans were delinquent, according to a report released on Thursday by the Mortgage Bankers Association. That represents 4.5 million borrowers and is an increase from 9.24% in the prior three months.

"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."

The delinquency rate includes all mortgage loans that are at least one payment past due but does not include loans in some stage of foreclosure.

The combined percentage of loans in foreclosure or at least one payment past due was 14.41% on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.

Worst-hit states

California, Florida, Arizona and Nevada continue to account for the lion's share of the foreclosure problem; the four represented 44% of all homes beginning the foreclosure process during the quarter.

One reason for the high rate is number of prime loans that went bad there. Many of these were option-ARMs, loans where borrowers had the choice of making minimum payments that did not even offset the interest being accumulated. For most option-ARM borrowers, mortgage balances grow rather than decrease.

At some point, usually when the accumulated debt reaches 10% to 25% more than the original principal, the loans get recast into fully amortizing, fixed rate mortgages. And when that happens, many borrowers simply cannot afford the new payments.

In California, 28.8% of all prime ARM loans were delinquent. Many of those were option ARMs.

Nationally, 26.6% of all prime ARMs were in foreclosure. That compared with 25.2% of all subprime ARMs and was the first time ever that a prime loan category performed worse than a subprime loan category, according to Brinkmann.

The future of FHA

The market share of FHA loans, which are backed by the government, has grown exponentially over the past three years. As a result, the performance of these mortgages has come under scrutiny by politicians and others afraid that taxpayers are on the hook for big losses if the loans fail.

According to the report, delinquencies for all FHA loans stood at 14.36% at the end of September, with another 11.99% either in foreclosure or 90+ days past due. That is actually a slight improvement over the previous quarterly, when the delinquency rate was 14.42%.

Brinkmann contended that FHA loans should perform relatively well over the next few years. For one thing, the FHA terminated programs that allowed borrowers to obtain third-party down-payment assistance. A high percentage of FHA loans that defaulted in the past came through that program.

Secondly, so many FHA loans are of such recent vintage that the values of their collateral, the homes, has not decreased as much as the collateral value of many older loans.

"Many of these loans were issued at the bottom of the price cycle," said Brinkmann. "There will not be as many defaults based on a lack of home equity."

He added that FHA defaults have, historically, been linked closely to economic conditions. Many FHA borrowers are entry level and first-time homebuyers, ones just starting out in life.

These homeowners often have shorter work histories and may be more adversely affected by layoffs. But Brinkmann believes the worst of the layoffs are behind us, so the new FHA borrowers may not suffer as many layoffs as has occurred over the past two years.

Recovery time

As the economy recovers, delinquencies will fall, but Brinkmann said it will take longer than the usual six months lag between an up-tick in hiring and a down-tick in delinquencies.

"With the big decrease in home prices, I see a lengthening of the process," he said. "Delinquencies will stay persistently higher than we've seen with most recoveries."

It could be a year or more after the unemployment rate stats to drop that the delinquency rate starts to improve. That may not be until at least mid 2011. To top of page

Find mortgage rates in your area


Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
These 20 antique guns could fetch big bucks Morphy Auctions in Pennsylvania is putting nearly 1,000 old guns on the block. Here are just a few. More
15 execs who make more than their CEOs Sure, corporate chiefs' pay often is eye-poppingly high. But at some companies, executives lower down the ladder quietly out-earned their CEO bosses. More
Novelty gifts for people with money to burn For those who've got the cash, these holiday gifts can really make a statement. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.