Mortgage Delinquency Rate Reaches a 30-Year High

The percentage of homeowners who fell behind on their mortgage payments in the second quarter surged to the highest level in at least 30 years, as more Americans lost their jobs and home prices continued to rise sharply, a mortgage banking group said Monday.

Analysts were puzzled by the jump in foreclosures, which typically are lower when the housing market is strong. The surge could signal that an increasing number of buyers have paid more than they can afford amid today’s record-high home prices, they said. Also, the misuse of home equity loans and the increase of zero-money-down loan programs may have contributed to the increase in defaults, economists say.

From April through June, the percentage of loans on which foreclosures were started rose to 0.40%, up from 0.37% the previous quarter, according to Mortgage Bankers Assn. of America figures. That is the highest level since the organization started tracking mortgage defaults in 1972.

Mortgages already in the foreclosure process stood at 1.23% in the second quarter, up from 0.91% a year earlier, also a record.

Rising unemployment has made it more difficult for some homeowners to meet their mortgage payments, fueling the increase in the foreclosure rate, said Doug Duncan, chief economist for the association. Unemployment averaged 5.9% in the second quarter, up from 4.5% a year ago.

The recent home price surge has in some cases made it more difficult to sell when an owner needs to get out, because there are fewer buyers who can afford them. In California, the median price of a single-family home in July was $323,700, up 21% from $267,520 a year ago, according to the California Assn. of Realtors.

Typically, when home prices are high, as they are now, troubled homeowners are able to sell their houses and avoid foreclosures, said John Lonski, chief economist with Moody’s Investors Service.

“I’m puzzled that we have record-breaking foreclosures amid such a brisk pace of home sales,” Lonski said. “Perhaps this is a warning that delinquencies and foreclosures will be higher in the months ahead.”

The home mortgage delinquency rate--the percentage of loans with payments overdue at least 30 days--rose to 4.77%, up from 4.64% a year earlier.

Another possible reason for the rising foreclosure rate, mortgage experts say, is the misuse of home-equity loans. Some lenders allow homeowners to borrow more than the value of their home, and the borrowers then use the funds to finance other expenditures, going deeper into debt.

Also, a growing number of home buyers are taking out loans that don’t require a down payment. When faced with a financial setback, such as the loss of a job, they are unable to tap into the home’s equity to refinance and lower their monthly payments.

“There are cases where it takes more to rent, with first and last months’ rent and a security deposit, than to buy a new home,” said Dan Weiss, a mortgage broker at Golden State Lending Services.

If delinquencies continue to rise, as expected, it could trigger more foreclosures, and lenders may be forced to tighten credit and raise mortgage rates to help cover risks.

“I would expect a slight increase in delinquencies next quarter because unemployment numbers have not improved to the extent we thought,” Duncan said. “This was unexpected; we’re trying to figure it out.”