5.28% of Mortgage Holders in Arrears; Most Since ’86

The recession pushed the percentage of Americans who are behind on their mortgage payments to the highest level in nearly five years during the April-June quarter, the Mortgage Bankers Assn. of America said Friday.

The industry group said its survey showed that the proportion of homeowners 30 days or more late on their payments climbed to a seasonally adjusted 5.28% in the second quarter.

That was up from 4.95% in the first three months of the year and 4.52% a year earlier. It was the highest since 5.32% of mortgages were delinquent in the fourth quarter of 1986.

All regions of the country reported substantial increases, which the association said “were consistent with broad-based economic weakness accompanying the recession.”

Moreover, association economists warned that because delinquency rates tend to lag developments in the economy, the rate likely will continue rising moderately for two or three quarters as the economy begins recovering.

“Frankly, we expect things to get worse before they get better,” said James W. Nelson, president of the association.

Association economists cited rising unemployment over the past year, weak income growth and sluggish increases in home prices as causes of rising delinquencies.

However, the higher delinquency rate has not yet translated into a substantial increase in foreclosures, except in the Northeast.

Nelson said many lenders are showing a greater willingness to temporarily accept reduced payments to get borrowers through tough times. Soft prices make it particularly unprofitable for lenders to foreclose and resell houses.

Nationally, the percentage of loans in foreclosure was 0.96% in the second quarter, slightly higher than the 0.93% a year earlier.

In the Northeast, however, where the recession has hit hardest and where home prices have declined in some markets, the foreclosure rate was 1.06% in the second quarter, compared to 0.81% a year earlier.

There was a slight increase over the year in the South to 1.16% from 1.14% and small declines in the Midwest, to 0.89% from 0.92%, and the West, to 0.72% from 0.78%.

The trade group said the single most important factor in preventing delinquent mortgages from entering foreclosure is the amount of equity owners have in their home.

Most owners acquire equity through price appreciation. Thus, the soft prices in the Northeast greatly increase the probability of default once a borrower falls behind.

Delinquency rates, by region, ranged from 5.91% in the South, up from 4.95% a year earlier, to 3.82% in the West, up from 3.37%. The rate in the Midwest was 4.98%, up from 4.37%, and the rate in the Northeast was 4.49%, up from 3.78%.

The particularly sharp rise in the South mostly reflected increases in large, once-booming Southeastern states, including Florida, Georgia, North Carolina and Virginia, the association said.