- A record percentage of U.S. homeowners are facing foreclosure,
and many more are falling behind on monthly house payments.
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- During April, May and June, 1.23% of mortgages -- about
640,000 -- were in the foreclosure process. That's the highest rate in
its 30 years of tracking, the Mortgage Bankers Association said Monday.
A year earlier, not even 1% of mortgages were in foreclosure.
Though the inclination might be to blame the economy, it's more than that,
industry observers say. Other factors might be at work.
Changes in the way lending is done, for example, could help explain the
trend. The past decade has brought a proliferation in mortgage products
-- including interest-only and low-down-payment loans. ''Many of these
products are being stress-tested for the first time in a recession,'' MBA
chief economist Doug Duncan says.
The high level of foreclosures is surprising for two reasons, Duncan says:
Economic conditions aren't all that dire, and previous surveys hadn't been
showing a level of delinquencies that would predict record foreclosures.
John Karevoll, a DataQuick analyst who independently has tracked an uptick
in foreclosures, says it might reflect greater willingness by lenders to
use foreclosure to compel payment.
''I'm told they're starting to use the foreclosure process to crack the
whip a little more than they once did,'' Karevoll says.
Housing remains strong in most markets, he says, giving the borrower or
lender opportunity for a quick resale at a good price.
Other likely culprits:
* The job market. Unemployment averaged 5.9% in the April-June quarter,
a recent high. Homeowners out of work find it harder to make payments.
Because the job market likely will remain soft, Duncan says, the proportion
of borrowers under stress might stay high for six months or so.
* Social policy. Government efforts to broaden home ownership have resulted
in nearly 68% of Americans owning homes, a record. But the efforts also
have meant lending to higher-risk borrowers.
* Consumer debt. As millions have refinanced, many have rolled high-interest
consumer debt into their mortgages. Doing so puts the house at risk when
times get tight.
Some distressed borrowers have been able to sidestep foreclosure by refinancing
to lower interest rates and cutting monthly payments, Duncan says.
In addition to high overall numbers of borrowers in foreclosure, the quarter
also saw the highest percentage against whom foreclosure was initiated
-- 0.4%.
The MBA survey also recorded an increase in homeowners more than 30 days
behind in scheduled house payments, but not yet far enough behind to face
foreclosure. On a seasonally adjusted basis, 4.77% of mortgage borrowers
were delinquent in the April-June quarter, vs. 4.65% the previous quarter.
The delinquency rate remains below records of the mid-1980s, when it ran
6%-plus.
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