US foreclosures hit record

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US mortgage delinquency rates and the percentage of loans that entered the foreclosure process jumped in the third quarter, with both reaching record highs, the Mortgage Bankers Association said.

The percentage of loans on which foreclosure actions were started rose to 1.42 percent, an all-time high, up from 1.36 percent in the second quarter and 1.07 percent in the third quarter of 2008, it said in its National Delinquency Survey.

Rising job losses propelled delinquencies and foreclosures, a trend that will continue into next year, the MBA said.

"It is all about unemployment, everything else is secondary," MBA chief economist Jay Brinkmann told Reuters.

"We expect unemployment to keeping rising into the first quarter of 2010, which means we will most likely see even higher rates of delinquencies and foreclosures," he said in an interview.

The U.S. unemployment rate reached a 26-1/2-year high of 10.2 percent in October.

The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64 percent of loans outstanding, up from 9.24 percent in the second quarter and 6.99 percent a year earlier, the MBA said.

The delinquency rate broke the record set last quarter, based on MBA data going back to 1972. The rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure.

The combination of loans in foreclosure and at least one payment past due was 14.41 percent on a non-seasonally adjusted basis, the highest ever seen in the survey.

"Prime fixed-rate loans continue to represent the largest share of foreclosures started and the biggest driver of the increase in foreclosures," Brinkmann said in a statement.

In fact, 33 percent of foreclosures started in the third quarter were on prime fixed-rate loans and those loans were 44 percent of the quarterly increase in foreclosures, he said.

"The foreclosure numbers for prime fixed-rate loans will get worse because those loans represented 54 percent of the quarterly increase in loans 90 days or more past due but not yet in foreclosure," he said.

The percentage of loans in the foreclosure process at the end of the third quarter was 4.47 percent, up from 4.30 percent in the second quarter and 2.97 percent a year earlier.

Florida, California, Arizona and Nevada have a disproportionate share of these problems, Brinkmann said.

They had 43 percent of all foreclosures started in the third quarter, down from 44 percent both last quarter and the third quarter last year. They had 37 percent of the nation's prime fixed-rate loan foreclosure starts and 67 percent of the prime adjustable-rate mortgage, or ARM, foreclosure starts.

At the end of September, 25 percent of mortgages in Florida were at least one payment past due or in foreclosure, he said.

OUTLOOK BLEAK

The outlook is for delinquency and foreclosure rates to continue to worsen before they improve, Brinkmann said.

"First, it is unlikely the employment picture will get better until sometime next year and even then jobs will increase at a very slow pace," he said.

"Second, the number of loans 90 days or more past due or in foreclosure is now a little over 4 million as compared with 3.9 million new and previously occupied homes currently for sale, although there is likely some overlap between the two numbers," he said.

Therefore, the ultimate resolution of these seriously delinquent loans will put added pressure on the hardest hit sections of the country, Brinkmann said.

- Reuters