Home foreclosure rates hit record high

The industrial Midwest has been hard hit by mortgage delinquencies.

WASHINGTON (AP) — Homeowners, struggling to deal with sharp increases in their adjustable mortgage payments, got hit with a record number of foreclosure notices in the spring as the crisis in subprime lending intensified.

The problem was the most severe in the industrial Midwest and former housing boom areas such as California and Florida, but economists warned the situation will get worse in coming months as an estimated 2 million adjustable-rate mortgages taken out with low introductory interest rates reset to much higher rates.

The crisis is most severe in subprime mortgages, loans provided to borrowers with weak credit, but it is now spreading to other types of mortgages, according to a quarterly report released Thursday by the Mortgage Bankers Association.

That report showed the number of homeowners who got foreclosure notices in the April-June quarter hit an all-time high of 0.65 percent, up from 0.58 percent in the first three months of the year. It marked the third consecutive quarter that a record was set.

The rising defaults in subprime mortgages have roiled global financial markets in recent weeks, sending stock prices on a roller-coaster ride.

Recession forecast

Mark Zandi, chief economist at Moody’s Economy.com., put the possibility of a recession at 40 percent, almost four times the possibility he had estimated in July, before the current credit crisis hit.

He said defaults will not peak until next year, reflecting a wave of introductory mortgages that are just now resetting from low “teaser” rates. Those resets can in many cases mean an extra $250 to $300 in higher monthly payments on the typical $1,200 monthly mortgage.

The MBA survey found that the delinquency rate, which tracks the number of people who are behind in their payments but have not yet entered the foreclosure process, was also up sharply during the spring. It rose to 5.12 percent of all loans, the highest level in five years and up from 4.84 percent in the first quarter.

The delinquency rate for subprime loans increased more sharply to 14.82 percent — up from 13.77 percent — in the first quarter. That marked the second-highest subprime delinquency rate on record after a 14.96 percent rate in the spring of 2002.

The delinquency rate for prime loans, offered to borrowers with good credit histories, also increased, but by a much smaller amount. It rose to 2.73 percent, up 2.58 percent in the first quarter.

Doug Duncan, the MBA’s chief economist, said the worsening performance was the result of two major factors — heavy job losses in the Midwest states of Ohio, Michigan and Indiana, a region hard hit by heavy losses in the auto industry and other manufacturing industries, and the collapse of previously booming housing markets in California, Florida, Nevada and Arizona.

“The percent of mortgages in Ohio that are 90 days or more past due or in foreclosure is still more than twice the national average and 1 percent of all the mortgages in Michigan had foreclosure actions started on them during the last quarter,” Duncan said.