New Foreclosure Rate Surges to Record

A record number of people started the foreclosure process in the April-to-June quarter, according to the Mortgage Bankers Association of America.

The MBA, which represents the real estate finance industry, reported Thursday that the rate of loans entering the foreclosure process was 0.65 percent, versus 0.43 percent in the same period a year ago. Most of the increase was for subprime loans.

"This quarter's foreclosure-starts rate is the highest in the history of the survey, with the previous high being last quarter's rate," the organization reported. Last quarter was just seven basis points lower, or 0.58 percent.

The performance of prime and subprime adjustable rate mortgages, or ARMs, is contributing significantly to foreclosures, the MBA reported.

Some 2 million ARMs are due to reset to higher rates this year, making monthly payments unaffordable for many.

Meanwhile, the delinquency rate — derived from those who are behind in their payments but have not yet entered the foreclosure process — rose to 5.12 percent of all loans. That's up nearly three-fourths of a percentage point from the same period a year ago.

"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," said Doug Duncan, the MBA's chief economist and head of Research and Business Development.

About 1 percent of all of the mortgages in Michigan had foreclosure actions started on them during the last quarter, essentially the same rate as during the last quarter. Problems are as significant in Indiana, Illinois, Kentucky, Tennessee and Pennsylvania, he said.

But it is the nation's largest states that account for the most foreclosures.

"What continues to drive the national numbers, however, is what is happening in the states of California, Florida, Nevada and Arizona. Were it not for the increases in foreclosure starts in those four states, we would have seen a nationwide drop in the rate of foreclosure filings," according to Duncan.

California, Florida, Nevada and Arizona have more than one-third of the nation's subprime ARMs, more than one-third of the foreclosure starts on subprime ARMs, and are responsible for most of the nationwide increase in foreclosure actions.

And the situation is likely to worsen, according to the MBA, because of a drop in home prices that makes it difficult to refinance ARMs. The reason for lower home prices is a glut of new homes.

Also, the four states have a disproportionately high share of investor loans — those made to buyers who do not plan to live in the house. As of June 30, the non-owner occupied share of defaulted loans (90 days or more past due or in foreclosure) was 32 percent in Nevada, 25 percent in Florida, 26 percent in Arizona and 21 percent in California. That compares with 13 percent in the rest of the nation.

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