WASHINGTON – “The rate of foreclosure starts and the percent of loans in the process of foreclosure are at the highest levels ever,” the Mortgage Bankers Association said in a report today.
The rate of loans entering foreclosure in the fourth quarter was a seasonally adjusted 0.83 percent, an increase of 0.05 percentage points from the third quarter and 0.29 percentage points from a year ago, the MBA said.
Subprime adjustable-rate mortgages (ARMs) represented 7 percent of loans but 42 percent of foreclosures started in the fourth quarter. Likewise, the states of California and Florida, where prices have plunged, accounted for 21 percent of loans outstanding but 30 percent of U.S. foreclosure starts in the period.
“Declining home prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state,” Doug Duncan, the MBA’s chief economist and senior vice president of research and business development, said in a statement. “In states like Ohio and Michigan, declines in the demand for homes due to job losses and out-migration have left those looking to sell the homes with fewer potential buyers, particularly with the much tighter credit restrictions borrowers now face. In states like California, Florida, Nevada and Arizona, overbuilding of new homes created a surplus that will take some time to work through.”
On a brighter note, Duncan said, “the rate reset issue on adjustable-rate mortgages is becoming less of an issue. The 6-month LIBOR rate – the index rate used for many subprime ARMs – has come down around 2.5 percentage points since last September, greatly reducing the payment shock on many ARM resets.”
But that won’t help everyone, Jay Brinkmann, the MBA’s vice president of research and economics, told Bloomberg News. “We’re seeing people give up even before they get to the reset, because they couldn’t afford the home in the first place.”
Fourth-quarter mortgage delinquencies for single-family to four-unit dwellings – the share of all home loans with payments more than 30 days late, not including properties already in foreclosure – amounted to 5.82 percent of all home loans outstanding, the highest rate since at least 1985, the trade group said. The rate was 0.23 percentage points higher than in the third quarter and 0.87 percentage points higher than in the 2006 fourth quarter.
By midday, investor reaction to the news had driven U.S. stocks to a six-week low, led by Citigroup Inc., JPMorgan Chase & Co. and Merrill Lynch & Co., Bloomberg News said.
Financial services companies in the Standard & Poor’s 500 Index fell for the sixth straight trading day, in their longest losing streak this year, amid fears of further losses on mortgage-backed securities. At 11:57 a.m., the S&P 500 was down 15.98 points, or 1.2 percent, at 1,317.72; the Dow Jones Industrial Average was down 115.19 points, or 0.9 percent, at 12,139.8; the Nasdaq Composite Index was down 15.77, or 0.7 percent, at 2,257.04 points.
The Mortgage Bankers Association is a trade group representing the real estate finance industry. Its 3,000 member companies include mortgage firms, commercial banks, thrifts, life insurance companies and others. Additional information, including the MBA’s Weekly Application Survey, is available at www.mortgagebankers.org.
