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Foreclosure rate hits record high

Los Angeles Times Staff Writer

Home foreclosures hit new highs and the amount of equity in homes reached new lows as the housing crisis escalated across the country in 2007, new figures showed Thursday.

Nationwide, nearly 6% of all mortgages were delinquent at the end of the fourth quarter and just over 2% were in foreclosure, the Mortgage Bankers Assn. reported.

The number of foreclosures was at the highest level since the association began keeping records in the 1970s.

"The escalation of foreclosures and the delinquency problems are hurting housing prices and hurting consumer wealth," said Lawrence Mishel, president of the Economic Policy Institute, a left-leaning think tank in Washington. "This tells me there are more housing problems in the pipeline."

The foreclosure rate was somewhat worse in California, with 2.23% of mortgages in foreclosure compared with 2.04% nationally. The delinquency rate was marginally better, with 5.39% of mortgages past due compared with 5.82% nationally.

Doug Duncan, chief economist for the Mortgage Bankers Assn., said the number of foreclosures and delinquencies in four hard-hit states -- California, Florida, Nevada and Arizona -- was high enough to skew the national data, and that the crisis was likely to last longer in those areas.

"It may well be that the rest of the country's housing may be in recovery at the same time you're seeing declines in California and Florida," Duncan said.

One difficulty in stemming the tide of foreclosures is the fact that many Americans have little or no equity in their homes, which makes it harder for them to refinance. The decline in equity is a result of falling home prices as well as the proliferation of no-down-payment loans and home equity loans.

In fact, for the first time since it began keeping track in 1945, the Federal Reserve said Thursday that Americans last year owed more on their houses than they owned.

For the last nine months of 2007, the amount of equity in American homes dropped below 50% of their value, the central bank reported in newly revised figures.

About 35% of American homeowners do not hold mortgages -- they either paid off their homes or bought them outright -- and so the remaining 65% owe significantly more than 50% of their home's value.

Federal Reserve Chairman Ben S. Bernanke warned this week that homeowners who have little or no equity in their homes are more likely to default and "walk away" from their mortgages.

"As our economy continues to slow, it is not going to get any easier for homeowners to make their mortgage payments while keeping pace with the rising costs of fuel, food, and other necessities," said Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee.

Dodd and other Democratic lawmakers have been critical of the Bush administration's effort to contain the housing crisis, saying it needs to more seriously consider measures to help distressed homeowners. They have accused lenders participating in the administration's voluntary "Hope Now" program of focusing on repayment options instead of looking for ways to write down the principal of homes.

"These people need help now -- not just 'Hope Now,' " Dodd said in a statement. "Unfortunately, the administration, whose lax oversight led to this crisis, has put only a flimsy plan in place that fails to offer enough of either."

Although the current crisis began with sub-prime loans -- mortgages made to borrowers with low incomes or poor credit -- the mortgage bankers survey showed delinquencies and foreclosures on the rise for prime loans as well.

The number of prime mortgages in arrears or foreclosure reached 4.51% nationally and 4.43% in California. The rates were higher for adjustable rate mortgages, with 8.68% either delinquent or in foreclosure nationally and 8.48% in California.

Sub-prime loans made up only about 13% of the mortgages surveyed by the mortgage bankers group, but they were defaulting at a much higher rate than prime loans. Nationally, 28.61% of all sub-prime loans were in trouble, including 35.15% of adjustable-rate sub-prime loans.

All the same, the rate of increase in delinquencies may be eased in coming months because the Federal Reserve has been lowering interest rates, Duncan said. That means that the reset rates may turn out to be close to the initial "teaser" rates for many borrowers.

"The problem will be much less than people thought it would be, though it won't be completely ameliorated," Duncan said in a conference call.

maura.reynolds@latimes.com

Times staff writer E. Scott Reckard contributed to this report.

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