In another dismal quarterly report, the Mortgage Bankers Association said Thursday that the share of all loans that were either 30 days or more delinquent or in foreclosure soared to 14.4% in the third quarter, the highest rate in 38 years.
Rising unemployment continues to push more prime fixed-rate borrowers into foreclosure, with no sign of a recovery for at least a year, the trade group said. Prime fixed-rate loans made up 33% of foreclosures started in the third quarter, the largest share of any loan category, the survey found.
"Foreclosures will be going up," said Jay Brinkmann, the MBA's chief economist. "The largest loan category impacted by unemployment is prime fixed-rate loans."
He cautioned that, even if unemployment peaks in the first or second quarter next year, what he called a "trailing effect" is likely, in which foreclosures remain "persistently higher than in past recoveries."
Delinquencies are expected to peak in the first or second quarter and foreclosures to hit a high in either the third or fourth quarter, he said. "We actually went into this recession with a housing market that was weakened, so when people did lose jobs because of unemployment, they were less likely to recover by selling their houses, since they had less equity," Brinkmann said on a conference call with reporters.
The rate of mortgages more than 30 days past due rose 40 basis points from the second quarter to a record 9.94%. The share of loans in foreclosure also set a record, 4.47%, in the third quarter, up 17 basis points from the previous quarter. And the share of loans on which foreclosure was begun hit a record 1.42%, up six basis points from the second quarter.
A big unknown for a housing recovery is the success of loan-modification efforts, which have caused the number of loans 90 days or more past due to balloon, Brinkmann said.
Foreclosure moratoriums also have an adverse effect in many states. For example, Illinois ranked at the top of the list in the third quarter for foreclosures begun because of a recently lifted moratorium. "When these delays are put into the process you see a big one-quarter drop … and then a big increase," Brinkmann said.
Four states remain hubs of the nation's housing woes: Arizona, California, Florida and Nevada.
But Florida stands "head and shoulders above the rest of country," Brinkmann said, with roughly 25% of mortgages there either in foreclosure or at least one payment past due.
It will take Florida at least three years — well into 2012 and 2013 — "just to clear out what is currently on the books," he said.
The total delinquency rate grew for every loan type tracked by the MBA in the quarter, except for loans insured by the Federal Housing Administration, where the rate fell six basis points from the second quarter, to 14.36%. But the share of FHA loans that were 90 days or more delinquent rose 89 basis points to 8.67%. "Traditionally, FHA loans are the most susceptible to changes in employment," Brinkmann said, because the borrowers, first-time homebuyers, tend to be younger and more vulnerable to layoffs.