US homes in foreclosure top 1 million

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Homes in foreclosure top 1 million

Mortgage bankers report hits grim a benchmark in first quarter,

showing a record number of homes in jeopardy.

By Isidore, CNNMoney.com senior writer

Last Updated: June 5, 2008: 2:09 PM EDT

NEW YORK (CNNMoney.com) -- More than one million homes are now in

foreclosure, the highest rate ever recorded, according to a trade

group which warned Thursday that number will continue to climb.

The Mortgage Bankers Association's first quarter report showed that a

record 2.5% of all loans being serviced by its members are now in

foreclosure, which works out to about 1.1 million homes. That's up

from the 2% of loans, or about 938,000 homes, that were in

foreclosure at the end of 2007.

The report also showed that 448,000 homes, or about 1% of loans being

serviced, began the foreclosure process during the first quarter.

That's up from about 382,000 homes, or 0.83%, that entered

foreclosure in the last three months of 2007.

The seasonally-adjusted rate of homeowners behind on their mortgage

payments also hit a record high. Nearly 3 million home loans, or

6.4%, have missed at least one payment, while about 737,000 are at

least three months past due, but not yet in foreclosure.

Grim numbers

" The figures aren't surprising, but they're pretty ugly nonetheless, "

said Larson, real estate analyst with Weiss Research. " We're

talking higher delinquencies and foreclosures pretty much across the

board. "

And he doubts that there's much reason to expect the foreclosure

crisis to abate until next year at the earliest, adding that it could

be a couple of years or more before foreclosure rates retreat to more

normal historical averages.

" It's the same story we've been seeing for a while now - we had too

much reckless lending, and buyers who got over-extended, " he

said. " We've had an unprecedented decline in home prices on a

nationwide basis, which is public enemy number one for mortgage

loans. And now you've got an overall economy that has slowed adding

to this toxic stew. "

Good credit, bad credit

Much of the problem lies with subprime loans given to borrowers with

weaker credit records, especially those loans that had adjustable

rates. Nearly four out of ten subprime ARM loans are a month or more

late, or in foreclosure. And subprime ARMs account for 39% of the

loans that fell into foreclosure during the quarter.

Prime fixed-rate loans, which are considered very low risk, have also

seen sharp increases in their delinquency and foreclosure rates,

although they are performing far better than the riskier loans on the

market.

There are 431,000 prime loans in foreclosure, a seasonally adjusted

rate of 1.2% that is more than double the 0.5% rate a year ago.

The report showed about 1.2 million prime mortgages are now a month

or more past due, a seasonably adjusted rate of 3.7% of those loans.

That's up from a rate of 2.6% a year ago.

According to Jay Brinkman, MBA's vice president for research and

economics, the prime loan segment was hurt by so-called Alt-A loans,

which didn't require income verification for buyers with good credit.

Prime loans are also getting into trouble in places such as Florida

and California, which have seen sharp home price declines.

" You still have people with prime fixed rate loans who lose their

jobs, who get a divorce or have an illness come up, and can no longer

afford a house, " Brinkman said. " In areas where there's been home

price appreciation, you can get out of that with the sale of a home

or some other negotiation. "

Getting worse before it gets better

This marks the sixth straight quarter in which a record percentage of

loans went into foreclosure.

The trend has led to a widespread decline in home prices, as well as

huge losses for banks and other financial firms that issued or

invested in the loans.

Nearly half of the homes in foreclosure are concentrated in six

states. But those states are undergoing two very different types of

housing meltdowns.

California, Florida, Arizona and Nevada have been hit by a hangover

after a home building boom in the middle of the decade, which was

fueled by rising home prices and investors snatching up real estate

using risky mortgages. Those four states have nearly 400,000 homes in

foreclosure, or a third of the nationwide total. Roughly 3.6% of all

of the loans in these states are now in foreclosure.

" Clearly things in California and Florida are going to get worse

before they get better, " said Brinkman.

The other two states that are ground zero for the crisis - Michigan

and Ohio - have been hit by the more traditional economic woes

stemming from rising job losses, particularly in the automotive

sector.

Ohio has about 61,000 homes in foreclosure, while Michigan has about

54,000. The foreclosure rate in those two states is 3.9%.

There is a glimmer of good news. The rate of homes going into

foreclosure in Ohio and Michigan was narrowly lower than it was in

the fourth quarter, and 18 other states also saw a decline in that

rate.

Brinkman said he hoped that means the crisis is at or near a bottom

in much of the country, and that foreclosure prevention efforts have

started to have an effect. But he added that a slight improvement in

one quarter doesn't necessarily mean the end is near.

Indeed, the rate of homes going into foreclosure continued to climb

sharply higher in California and Florida, as has the rate of loans in

those states that are 90 days or more past due but not yet in

foreclosure. Brinkman said that in markets like these, where home

prices have fallen so far from the market's peak, finding solutions

to keep a home out of foreclosure are more difficult.

He also added that, given the large impact California and Florida are

having on the national foreclosure numbers, and the fact that

historically foreclosures peak about three years into the loan's

life, he expects the number of foreclosures will continue to rise.

First Published: June 5, 2008: 10:17 AM EDT