Thursday, December 06, 2007

U.S. Mortgage Delinquencies Rise to 20-Year High (Update1)

By Kathleen M. Howley

Dec. 6 (Bloomberg) -- The number of Americans who fell behind on their mortgage payments rose to a 20-year high in the third quarter as borrowers were unable to refinance or sell their homes.

The share of all home loans with payments more than 30 days late, including prime and fixed-rate loans, rose to a seasonally adjusted 5.59 percent, the highest since 1986, the Mortgage Bankers Association said in a report today. New foreclosures hit an all-time high for a second consecutive quarter.

The surge in foreclosures is expanding the inventory of unsold homes and contributing to the decline in home prices. The National Association of Realtors is forecasting new home sales will drop 13 percent in 2008. About 40 percent of lenders have increased their standards for the most creditworthy borrowers to qualify for a so-called prime loan, according to a Federal Reserve study in October.

``These are the first numbers we've seen that combine the meltdown of the credit markets with the drop in home prices,'' said Jay Brinkmann, vice president of research and economics for the Washington-based bankers trade group.

President George W. Bush and U.S. Treasury Secretary Henry Paulson plan to announce a proposal today to freeze some subprime mortgages to stop a wave of foreclosures that has cut prices and demand for houses.

California, Florida Lead

One in every five adjustable-rate subprime loans had late payments in the quarter, a number that excludes the one of every 10 already in foreclosure, the trade group said. Foreclosures started on all types of mortgages rose to an all-time high of 0.78 percent from 0.65 percent.

In the quarter, 3.12 percent of prime borrowers made their mortgage payments at least 30 days late, up from 2.73 percent in the second quarter, the report said. The subprime share of late payments rose to 16.3 percent from 14.8 percent.

The numbers were driven by California, the U.S.'s largest state, and Florida, Brinkmann said. The two states had 36.4 percent of all of the nation's prime adjustable-rate loans and had 42.4 percent of new foreclosures during the quarter, he said. They had 28.1 percent of subprime adjustable mortgages and 33.7 percent of foreclosure starts for that type of loan.

That is more than double the 15 percent who reported boosting requirements in July, the prior survey. Sixty percent of banks said they tightened qualifications for so-called non- traditional mortgages such as interest-only loans, the Fed said.

The Mortgage Bankers report is based on a survey of 45.4 million loans by mortgage companies, commercial banks, thrifts, credit unions and other financial institutions.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .

Last Updated: December 6, 2007 10:31 EST

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