Foreclosures Reach A Record 1 Million Homes
Greg Farrell and Noelle Knox of USA Today reported on March 7th that, according to a survey by the Mortgage Bankers Association (MBA), nearly 3 million homeowners (6.3%) were behind on their mortgages in the fourth quarter of 2007. Also, more than 1 million borrowers – representing 2% of all loans – were in foreclosure. Residents in California and Florida together accounted for 30% of the new foreclosures.
Amy Hoak of MarketWatch reported that the delinquency rate on loans past due but not in foreclosure is the highest since 1985. Hoak noted that, according to Doug Duncan, chief economist of the MBA, “Declining home prices are clearly the driving factor behind home foreclosures, but the reasons and magnitude of the declines differ from state to state."
Furthermore, the delinquency rate on mortgage loans appears poised to increase, perhaps dramatically. An estimated 1.8 million subprime ARMs are expected to reset to higher rates this year and next. Many such loans are projected to reset in May and June. They could be in default in the 3rd quarter and in foreclosure by the 4th quarter. (Borrowers are considered “delinquent” if they miss one monthly payment. Foreclosure proceedings usually do not start until a loan is 90 days past due.) While a number of ARMs have defaulted even before the reset period takes effect, weak economic conditions including rising fuel prices and declining home values coupled with higher interest rates significantly increase the chances that more homeowners will default.
"We don't expect to see a peak in delinquency rates and foreclosures until mid-to-late 2008," says Duncan. Rick Sharga of RealtyTrac agrees. "Until they work their way through the system," Sharga says, "we don't see any way that foreclosure levels will decrease."
MBA's survey covered 46 million loans on one-to-four-unit residential properties and represents more than 80% of all first-lien residential mortgage loans outstanding. Only 35% of all homeowners own their home free and clear.
