With a warning that the worst is yet to come, the Mortgage Bankers Association said that lenders began foreclosure proceedings on a record number of homes this spring.
The turmoil in the mortgage market poses multiple threats, the MBA says. Foreclosures are likely to rise for at least another year. A bigger supply of homes in foreclosure would weaken prices in many areas. And people behind on loans will find it harder to refinance.
“There have been dramatic changes in the mortgage market,” says Doug Duncan, the MBA’s chief economist. “We do not yet believe we have seen the peak.”
A rise in late payments in the second quarter was again driven by borrowers with bruised credit and adjustable-rate mortgages (ARMs). Many of them can no longer afford their payments as the loans reset to higher rates. Nearly 17 percent of borrowers with “subprime” ARMs were behind on their payments in the second quarter, another record.
For all loan types, 5 percent of borrowers — nearly 2.5 million people — missed at least one payment last quarter. That’s up from 4.4 percent in the same period last year.
The problems appear to be focused in seven states. Job losses in Michigan, Ohio and Indiana have depressed housing there. Those three states account for nearly 20 percent of the nation’s homes in foreclosure.
And a rising number of defaults in four states — California, Nevada, Florida and Arizona — is largely why the U.S. delinquency rate is up. As home prices there fall, more people are in the upside-down position of owing more on their loans than their homes are worth.
