About 6% of U.S. mortgages delinquent, report reveals

Nearly 6% of all mortgages were delinquent nationwide in the fourth quarter and foreclosure starts were at the highest levels ever, according to a report issued Thursday by the Mortgage Bankers Association.

Michigan continues to rank high for delinquencies and the number of homes in foreclosure. The state ranked second nationwide with 8.97% of its home loans more than 30 days delinquent during the three months ended Dec. 31. Mississippi was first with 11% of loans delinquent and Georgia was third with 8.37%.

Michigan ranked third when it came to foreclosure inventory with 3.38% and third based on foreclosure starts with 1.29% during the quarter.

The total national delinquency rate of 5.82% is the highest in the mortgage bankers survey since it reached 6.07% in 1985, said Doug Duncan, chief economist for the mortgage bankers.

The housing market bust could end up being even more dramatic than the long boom that ran from 1998 to 2005 and drove prices to astronomical levels in states like California and Florida. Those states are now suffering with a disproportionate share of foreclosure starts.

California and Florida represent 21% of loans outstanding and 30% of foreclosure starts. They also account for 18% of gross domestic product, Duncan said.

And with no end in sight to the cycle of foreclosures and resulting fire sales that drag down overall home prices and glut the housing inventory, Duncan expects default and foreclosure rates to rise in the next two quarters.

"We don't expect to see the peak in delinquencies or foreclosure until mid- to late-'08," he said.

The survey covers 46 million loans and represents more than 80% of all first lien residential mortgage loans outstanding.

"Declining home prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state," Duncan said.

"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 their homes with fewer potential buyers, particularly with the much tighter credit restrictions borrowers now face."

"In those states, it is a demand-side phenomenon," Duncan said.

He expects another interest rate cut by the Federal Reserve this month and that could help stave off additional mortgage defaults and foreclosures.

The number of subprime adjustable rate mortgages that went into foreclosure during the quarter rose to a record of 5.29% of all loans, up from 4.72% in the third quarter.

The subprime adjustable rate mortgages represent 7% of all loans outstanding, but 42% of all foreclosures begun in the fourth quarter.

Michelle Lee-Morris, a consultant and loss mitigation specialist for the Detroit-based, nonprofit Portfolio Management Systems, which helps people avoid defaults and foreclosure, said the fourth-quarter report isn't surprising and much needs to be done to solve the problem in metro Detroit.

"The banks set up these programs. They set up the 115%, the 100% loans. We all know at this point it came from a position of greed," Lee-Morris said. "The efforts from the Fed are wonderful, however they are huge Band-Aids."

Lee-Morris expects the housing market in metro Detroit to start improving, not this year, but in two to three years.

"We are talking about economic changes and jobs coming back. The tougher issues of job losses are still there. There has to be some structural changes," she said.

By GRETA GUEST
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