What rebound? Foreclosures rise as jobs and income drop
Delinquency and foreclosure rates for U.S. mortgages continued to rise in the second quarter, with loans to the most qualified borrowers going bust at an unnerving clip, especially in hard-hit states such as Florida and California.
The numbers reported Thursday by the Mortgage Bankers Association show clearly that rising job losses are worsening the nation's housing troubles and threaten the Obama administration's efforts to keep owners from losing their homes.
The quarterly National Delinquency Survey showed that almost one in 10 homeowners with a mortgage was at least one payment late, and thus delinquent, while another 4 percent had entered the foreclosure process on their loan.
Nowhere is there less sunshine in this picture than Florida. The survey found that from April to June, 12 percent of all Florida mortgages were in the foreclosure process and about 23 percent of all Florida mortgages_ almost one in four_ were late on payments or under threat of foreclosure.
In California, 10.8 percent of all mortgages were 90 days or more past due or in foreclosure. While the Golden State accounts for 13.3 percent of U.S. mortgages, it's also the site of almost 20 percent of foreclosure starts from April to June.
More worrisome is a trend emerging deeper in the numbers: Subprime loans given to the weakest borrowers are now a declining portion of delinquency and foreclosure rates, while prime loans, given to the most highly qualified borrowers, are a rising share.
"The rise in prime delinquencies . . . is a clear indication that employment is the driver of mortgage performance, with the worst performance coming in those areas that are combining jobs losses with large drops in home values like California and Florida," Jay Brinkmann, the group's chief economist, told McClatchy. "We won't see a turnaround in delinquencies until we see improvements in employment, most likely the middle of next year."
Forty-one states notched a rise in their foreclosure rate for prime fixed-rate mortgages in the second quarter, and prime fixed-rate loans accounted for one in three foreclosure starts. A year ago they were one in five starts.
Prime fixed-rate loans are 65 percent of all U.S. mortgages outstanding, but more than 32 percent of foreclosure starts from April to June. They also constitute 27 percent of all U.S. loans now in foreclosure, up from 17 percent in the comparable 2008 period.
The rising delinquency and foreclosure rate for prime loans creates new problems for the Obama administration, which inherited a complicated housing situation.
The administration has unveiled a number of incentives for lenders and mortgage servicers, who collect mortgage payments on behalf of investors, to modify distressed mortgages by refinancing into lower rates or lowering monthly payments.
The Making Home Affordable effort, however, is geared toward borrowers who have jobs and income. The increased rate of delinquency and foreclosure on prime fixed-rate loans reflects massive job losses occurring nationwide. Workers losing jobs won't qualify for housing help.
"The reason people are defaulting on these (loans) is they simply don't have income, and there aren't any loan modification programs for someone who does not have income," said Rick Sharga, the vice president of the Irvine, Calif., firm RealtyTrac, which specializes in foreclosure research.
The trend will grow worse.
"The rising levels of unemployment will probably, over the next nine to 12 months, become the primary impetus for foreclosure activity," Sharga said. "That's the wave that is just starting to hit and we're just starting to see the problems now."
There was more bad news on the employment front Thursday, with the Labor Department reporting for a second consecutive week an unexpected rise in initial jobless claims. The 576,000 claims last week, following 561,000 the week before, likely sets up a bad employment report for August after a July reprieve.
The unemployment rate stood at 9.4 percent in July but is expected to peak above 10 percent. That means more foreclosures, which will put a drag on recovery.
"It will definitely slow down the housing market a bit, which will have a corollary effect on the overall economy coming back" to life, Sharga said.