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Mortgages in foreclosure jump in first quarter

Foreclosure starts, delinquency rate also rise in first months of 2008: MBA

By Amy Hoak, MarketWatch

Last update: 2:13 a.m. EDT June 6, 2008

 

 

 

CHICAGO (MarketWatch) — More homeowners headed toward foreclosure in the first three months of 2008, as both the percentage of loans somewhere in the foreclosure process as well as the rate of foreclosure starts reached levels not seen since 1979, the Mortgage Bankers Association reported on Thursday.

The percentage of loans in the foreclosure process at the end of the first quarter rose to 2.47% of all mortgages outstanding on one- to four-unit properties, up from 2.04% in the fourth quarter, according to the MBA’s latest National Delinquency Survey. In the first quarter of 2007, 1.28% of loans were in the foreclosure process.

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Loans entering the foreclosure process rose to a seasonally adjusted 0.99%, up from 0.83% in the fourth quarter and 0.58% in the first quarter of 2007.

The seasonally adjusted delinquency rate for mortgage loans also was the highest since 1979, with 6.35% of all loans at least one payment past due during the first quarter, up from 5.82% in the fourth quarter and 4.84% in the first quarter of 2007. The delinquency rate doesn’t include mortgages in foreclosure.

Foreclosure start rates were up for all types of mortgages, and that’s a reflection of the decline in home prices, said Jay Brinkmann, MBA vice president for research and economics. Some of the biggest problems appeared in areas where overbuilding occurred during the real-estate boom, and extra supply is lingering on the market.

But the magnitude of the increases was driven by mortgages held in several key states as well as certain mortgage types, he added.

“Most of the country, I would say, performed how I expected,” he said in a telephone interview. “What surprised me was just how bad things had gotten in California and Florida.”

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Four key states — California, Florida, Arizona and Nevada — again drove the foreclosure increases, according to the MBA. The states represent 62% of the foreclosures started on prime ARM loans in the first quarter and 49% of the foreclosure starts on subprime ARMs.

About 109,000 mortgages entered the foreclosure process in California in the first quarter, and 77,000 entered the process in Florida. For comparison, the states with the next highest volumes of foreclosures were Texas, Michigan and Ohio, which had between 24,000 and 20,000 foreclosure starts each.

But about 20 states actually experienced drops in the number of foreclosure starts, he said. In fact, Michigan, Ohio and Indiana — states that have had severe foreclosure issues in the past several years — all saw a drop in foreclosure starts in the first quarter.

This leveling-off suggests that the situation in these Midwestern states isn’t getting any worse, and that’s a positive, Brinkmann said. But he doesn’t see the numbers in California and Florida improving any time soon.

Adjustable-rate mortgages are also driving the foreclosure start rates.

“For example, while subprime ARMs represent 6% of the loans outstanding, they represented 39% of the foreclosures started during the first quarter. Prime ARMs represent 15% of the loans outstanding, but 23% of the foreclosures started,” Brinkmann said in a news release. “Out of the approximately 516,000 foreclosures started during the first quarter, subprime ARM loans accounted for about 195,000 and prime ARM loans 117,000, but the increase in prime ARM foreclosure (starts) exceeded subprime ARM foreclosure (starts) with increases of 29,000 and 20,000 respectively over the previous quarter.”

Alt-A loans (often prime loans received with little or no income documentation) as well as option ARMs drove increases in foreclosure starts among prime ARMs, Brinkmann said.

Prime fixed-rate loan foreclosure starts rose to 0.29% in the first quarter, up from 0.22% in the fourth quarter, and prime ARM foreclosure starts rose to 1.55%, up from 1.06%. Subprime fixed-rate foreclosure starts rose to 1.80% from 1.52% in the previous quarter and subprime ARM starts rose to 6.35% from 5.29%.

Foreclosure starts on loans backed by the Federal Housing Administration, however, fell to 0.87% from 0.91% in the fourth quarter.

A glimmer of hope

Brinkmann said that part of the improvement seen in some states is likely due to the effect of outreach efforts including the Hope Now Alliance, a private-sector alliance of mortgage servicers, counselors and investors working to prevent foreclosures.

The alliance reported last week that since July 2007, the industry has helped nearly 1.6 million homeowners avoid foreclosure through modifications or repayment plans.

In terms of foreclosures, “not every place is getting worse. Twenty states are getting better,” Brinkmann said. He also said that reports of people walking away from their homes due to negative equity situations have been somewhat overblown.

“The cost of someone doing that, in terms of future ability to purchase a home, is rather large,” he said. People more apt to walk away are those who were renters and only bought a home with intentions of making a lot of money off its appreciation, he said.

What to do if you face trouble

Those who do face foreclosure should be proactive and contact the bank or lending institution to discuss their situation, said Jacob Benaroya, president of the Biltmore Capital Group, in a news release. Biltmore purchases distressed loans from lending companies.

Benaroya suggests that distressed borrowers prioritize spending, adding that keeping a home should be a priority second only to health care. Also avoid foreclosure-prevention companies and instead contact a counselor approved by the U.S. Department of Housing and Urban Development, he added.

“There are many ways in which the lenders and/or mortgage institutions can successfully make a return on the loans while enabling the homeowner to remain in the home,” he said. “It doesn’t happen all of the time, but with good communication between the mortgagee and the mortgager, there are many ways both parties can make a horrible situation amicable.” 

Amy Hoak is a MarketWatch reporter based in Chicago.

 

 

 

Filed under: CDO, currency, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: foreclosure defense, mortgage meltdown |