Adding to worries about the economy's direction, the number of newly delinquent home loans has risen for two straight quarters in what could foreshadow another surge in unemployment-related foreclosures.
The consequences of the increase in fresh delinquencies are uncertain. But the rise presents a troubling counterpoint to positive trends in severely delinquent loans and foreclosures, which, although still at very high levels, have begun to decline, the Mortgage Bankers Assn. said Thursday.
The data release helped push the Dow Jones industrial average down 74 points, causing the index to close below 10,000 for the first time in seven weeks.
The delinquency report followed news this week of unexpectedly sharp declines in home sales despite record-low mortgage interest rates. Freddie Mac said Thursday that the average rate available on a 30-year fixed-rate loan fell this week to 4.39%, the lowest level in the nearly four decades that the mortgage giant has been tracking home loan interest costs.
Economists attributed the increase in newly delinquent mortgages to the country's persistently high unemployment.
"It takes a paycheck to make a mortgage payment," said Jay Brinkmann, chief economist for the Mortgage Bankers Assn. He said the trend could lead to another increase in foreclosures if the employment picture doesn't brighten soon.
"Unfortunately, since April, there has been almost no job growth at all, so I think that is where the risk lies looking forward," said Christopher Low, chief economist at Chicago investment firm FTN Financial.
The declines in serious delinquencies and foreclosures were caused in part by a since-expired federal tax credit for home purchases, Brinkmann said. The credit caused a brief spike in sales, allowing some late-paying borrowers to catch up by selling their properties.
Other factors cited by Brinkmann: successful loan modifications and the decrease in new delinquencies last year, which meant that fewer bad loans were moving toward foreclosure.
Now, he said, two of those three contributors to the improving picture have disappeared.
The mortgage bankers group said the percentage of newly delinquent mortgages — defined as at least 30 but less than 60 days in arrears — fell for three straight quarters last year from a peak of 3.77% but then reversed course this year and stood at 3.51% in the April-to-June period.
Economists are closely watching the huge category of loans in foreclosure or at least 90 days past due. The numbers of such mortgages had swelled because of moratoriums on foreclosures and trial loan modifications, many of which have not provided permanent relief for borrowers.
There were about 4.5 million of these loans at the end of June, about the same as the number of houses for sale, Brinkmann said.
Citing a high rate of unsuccessful loan modifications, some economists say the homes financed by these loans could eventually flood the market, prompting home prices to fall after stabilizing in many areas.
These severely troubled loans fell from 9.54% of all mortgages at the end of March to 9.11% in June. Lenders began foreclosure proceedings on 1.11% of all loans in the second quarter, down from 1.23% in the first quarter.
One reason new foreclosure proceedings are down is that some banks have pushed back foreclosures in a bid to avoid flooding the market with steeply discounted properties, said economist Sean O'Toole at data tracker ForeclosureRadar.
In addition, some mortgage servicers may be waiting to see the effect of emergency economic aid the Obama administration has provided to states, said Douglas Robinson, spokesman for NeighborWorks America, a foreclosure counseling group.
"We don't think that the decline in foreclosure filings is due to any serious change in the economy or in the housing outlook," he said.
He predicted that increases in monthly payments on some interest-only and "pay option" mortgages, coupled with high unemployment, would create "the next wave of foreclosure" late this year.