U.S. Mortgages Enter Foreclosure at Record Pace

16 06 2007

The number of Americans who may lose their homes because of late mortgage payments rose to a record in the first quarter, led by subprime borrowers pinched in an economy that grew at the slowest pace in four years.

The share of all mortgages entering foreclosure rose to 0.58 percent from 0.54 percent in the fourth quarter, the Mortgage Bankers Association said in a report today. Subprime loans entering foreclosure rose to a five-year high of 2.43 percent, up from 2 percent, and prime loans rose to a record 0.25 percent.

The median U.S. home price probably will fall this year for the first time since the Great Depression in the 1930s, according to Lawrence Yun, a National Association of Realtors economist. Tumbling prices make it difficult for people who fall behind in loan payments to escape foreclosure by selling, said Doug Duncan, chief economist for the Washington-based bankers’ group.

Housing is in a recession, and we’re seeing that reflected in prices,” Duncan said “If you’re in a position where you can refinance or sell, but house prices have fallen below your outstanding loan balance, you’re in trouble.”

The economy expanded at a 1.9 percent pace in the first quarter, compared with a year earlier, the smallest gain since the 1.8 percent rate in the second quarter of 2003. Measured annually, the housing slump will help to cool 2007’s economic growth to the slowest pace in five years, said Frank Nothaft, chief economist of Freddie Mac, the world’s No. 2 mortgage buyer.

Ohio had the biggest share of all loans entering foreclosure, at 1.07 percent, followed by Indiana, at 1.04 percent, and Michigan, at 1.01 percent, according to the report.

Auctions Every Monday

Marion Wintucky, chief deputy of the civil division of the Cuyahoga County Sheriff’s Department in Ohio, is the auctioneer for the sale of about 300 foreclosed properties every Monday at 8:30 a.m. in Cleveland. Three years ago, there were about 80 properties and it started at 10 a.m., she said.

“We’ve had such a phenomenal increase in sales we’ve had to move the auction to an earlier start time,” Wintucky said in an interview. “It’s sad to see so many people losing their homes.”

The percentage of total homes in foreclosure, the so-called inventory, also rose for both categories, with subprime loans climbing to 5.10 percent from 4.53 percent, and the prime share rising to 0.54 percent from 0.50 percent. The survey goes back to 1972, Duncan said.

`Innocent Houses’

Living in an area with multiple foreclosures can result in a 10 percent to 20 percent decrease in property values, said John Kilpatrick, president of Greenfield Advisors, a Seattle real estate consulting firm. In some cases that can wipe out the equity of homeowners or leave them owing more on their mortgage than the house is worth.

“The innocent houses that just happen to be sitting next to those properties are going to take a hit,” Kilpatrick said.

The share of overdue payments, or delinquencies, on all types of loans was 4.84 percent, down from 4.95 percent in the fourth quarter, the report showed. Payments between 30 days and 60 days late dropped to 2.93 percent from 3.08 percent, the 60 days to 90 days late payments grew to 0.93 percent from 0.90 percent, and the share of payments more than 90 days late increased to 0.98 percent from 0.96 percent.

In the quarter, 2.58 percent of prime borrowers made their mortgage payments at least 30 days late, a fifth the rate of subprime borrowers, according to the Mortgage Bankers report. The subprime share of late payments rose to 13.77 percent from 13.33 percent in the fourth quarter, according to the report.

Surge in Defaults

Noel Jaimes, a Whittier, California-based real estate agent, said he has to turn away some business because of a surge in defaults in southeast Los Angeles County and north Orange County. Jaimes does broker price opinions, known as BPOs, for lenders who want to establish value before selling or auctioning a property.

“If I didn’t put a block on them, I’d probably be doing 30 BPOs a week,” Jaimes said. “They would take up all my time.”

Sales of new houses probably will tumble 18 percent this year, on top of an 18 percent drop in 2006, the Chicago-based National Association of Realtors said in a June 6 forecast. Sales of previously owned homes will drop 4.6 percent, following an 8.5 percent decline last year, the trade group said.

The median U.S. price for a previously owned home likely will fall 1.3 percent in 2007 to $219,100, the first national decline on record, and the new-home median likely will drop 2.3 percent to $240,800, the first decrease in 16 years, according to the real estate trade group.

The Mortgage Bankers report is based on a survey of 43.9 million loans by mortgage companies, commercial banks, thrifts, credit unions and other financial institutions.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .




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