Foreclosures are spreading by epidemic proportions, expanding beyond a handful of problem states and now affecting almost 1 in every 8 American homeowners. It’s an economic role-reversal: The economy, driven down by the collapse of the housing bubble, is causing the housing crisis to spread. A mortgage report released yesterday indicated that nearly 12% of all Americans with a mortgage a record 5.4 million homeowners were at least one month late or in foreclosure at the end of last year. That number rose higher from 10% at the end of the 3rd quarter, and up from 8% at the end of 2007. In addition, the numbers now include many once-qualified borrowers who took out fixed-rate home mortgages.
Data from the MBA also indicated that a stunning 48% of homeowners who have subprime, adjustable rate mortgage loans are behind on their payments or in foreclosure. The predatory lending and reckless mortgage brokering practices in states like Florida, California and Nevada that were posting the highest rates of foreclosure, are no longer driving up the country’s home loan delinquency rate. That trend highlights one of the biggest challenges confronting the Obama administration’s mortgage relief plan launched this week. While the $75 billion plan could help change the loan terms or refinance up to 9 million homeowners, unemployed borrowers will have a hard time qualifying.
Unemployment for people with college degrees, some college education or technical training those most likely to own homes and have prime fixed rate home loans has nearly doubled over the past six months, according to the bankers association. To give debt-riddled homeowners a little more leverage to negotiate with their mortgage lenders, the House on Thursday was expected to pass legislation to change bankruptcy laws, so courts would have the power to reduce mortgage payments. Credit card debt has been rising at a shocking rate as well, but not credit card companies are lowering credit lines and now many borrowers are unable to pay their mortgage with their credit cards. Home equity loans and second mortgages are no longer available, so borrowers find themselves in a financial pinch. The legislation would give bankruptcy judges who now can modify loans for cars and student loans but not for primary residences new authority to reduce the interest rate and principle on a mortgage loan. The Senate is expected to take up the measure in a couple of weeks.
The only bright spot in the foreclosure report was that the devastation wrought by subprime ARMs is waning. Their thirty-day delinquency rate continues to fall and is at the lowest point since the first quarter of 2007. Most of those types of mortgage loans have made their way through the system as lenders stopped originating them in the first half of 2007. That offers little comfort to Florida, where 60% of homeowners who have a subprime ARM are at least one payment behind and 20% of all mortgage holders are not current on their loans. And while the worst is not over for Florida, the financing set-backs appear to be just beginning in once robust real estate markets like San Diego, Houston, Las Vegas and New York. Good credit homeowners are beginning to default at an alarming rate.
