Mortgage Delinquencies Set New Record

In another sign of the severe housing-related financial stress that appears far from dissipating, mortgage delinquencies set a new record in the third quarter of 2009, with 9.64 percent of mortgages on one- to four-unit residential properties in arrears, according to the Mortgage Bankers Association.

In other words, almost one in 10 homeowners is behind on his or her mortgage. This is a rate not seen during all the previous recessions since 1972 which is how far back the MBA's data goes. That's just stunning.

The worrisome trend makes sense when one considers that unemployment has increased to 10.2 percent. Combined with that, many adjustable-rate mortgages are resetting to significantly higher interest rates making what were once affordable mortgages for some homeowners now unaffordable.

The MBA noted that the increase in delinquencies is no longer about subprime mortgages going belly up. The story now is that owners who once had excellent credit and were able to obtain prime mortgage loans are falling behind in their payments and pushing up delinquency rates.

Here's part of the MBA's discussion of the problem from its press release:

The delinquency rate breaks the record set last quarter. The records are based on MBA data dating back to 1972.

The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the third quarter was 4.47 percent, an increase of 17 basis points from the second quarter of 2009 and 150 basis points from one year ago. The combined percentage of loans in foreclosure or at least one payment past due was 14.41 percent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.

The percentage of loans on which foreclosure actions were started during the third quarter was 1.42 percent, up six basis points from last quarter and up 35 basis points from one year ago.

The percentages of loans 90 days or more past due, loans in foreclosure, and foreclosures started all set new record highs. The percentage of loans 30 days past due is still below the record set in the second quarter of 1985.

Increases Driven by Prime and FHA Loans

"Despite the recession ending in mid-summer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP. Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07 percent to 1.42 percent," said Jay Brinkmann, MBA's Chief Economist.

"Prime fixed-rate loans continue to represent the largest share of foreclosures started and the biggest driver of the increase in foreclosures. 33 percent of foreclosures started in the third quarter were on prime fixed-rate and loans and those loans were 44 percent of the quarterly increase in foreclosures. The foreclosure numbers for prime fixed-rate loans will get worse because those loans represented 54 percent of the quarterly increase in loans 90 days or more past due but not yet in foreclosure.

"The performance of prime adjustable rate loans, which include pay-option ARMs in the MBA survey, continue to deteriorate with the foreclosure rate on those loans for the first time exceeding the rate for subprime fixed-rate loans. In contrast, both subprime fixed-rate and subprime adjustable rate loans saw decreases in foreclosures.