Record 1 In 10 Homeowners In Serious Mortgage Trouble

WASHINGTON — A record one in 10 American homeowners with a mortgage were either at least a month behind on their payments or in foreclosure at the end of September as the source of housing market pressure shifted from risky loans to the crumbling U.S. economy.

The percentage of loans at least a month overdue or in foreclosure was up from 9.2 percent in the April-June quarter, and up from 7.3 percent a year earlier, the Mortgage Bankers Association said Friday.

The foreclosure crisis continued to be concentrated in states like Florida, where a stunning 7.3 percent of all loans were in foreclosure at the end of September, by far the highest in the country.

In Nevada, the number was 5.6 percent. It was 3.9 percent in California _ compared with about 3 percent nationally.

Distress in the home loan market started about two years ago as increasing numbers of adjustable-rate loans reset to higher interest rates. But the latest wave of delinquencies is coming from the surge in unemployment.

Employers slashed 533,000 jobs in November, the most in 34 years, catapulting the unemployment rate to 6.7 percent, the Labor Department said Friday. "Now it's a case of job losses hitting more across the board," Jay Brinkmann, the trade group's chief economist.

With the economy worsening, the much-anticipated bottom of the housing market likely will be pushed further into the future.

"Things are going to get worse before they get better," said Northern Virginia housing economist Thomas Lawler.

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Most troubling, he said, is that the mortgage bankers' report reflects conditions before October's stock market plunge and the resulting economic fallout.

"The number of homes that are in the foreclosure process is so high _ right before the economy has fallen off a cliff," Lawler said.

The U.S. tipped into recession last December, a panel of experts declared earlier this week, and economists fear it could be the longest and most severe in decades. Since the start of the recession, the economy has lost 1.9 million jobs.

Job losses are already having an impact in rising delinquency rates for traditional 30-year fixed rate loans made to borrowers with strong credit. Total delinquencies on those loans rose to 3.35 percent in September from 3.07 percent at the end of June, the Mortgage Bankers Association said.

Lenders appear to be on track to initiate 2.25 million foreclosures this year, up from an average annual pace of less than 1 million during the pre-crisis period, Federal Reserve Chairman Ben Bernanke said this week. In the third quarter, there were about 575,000 new foreclosures, with about 183,000 in California and Florida combined, according to the MBA's data.

There were some modest signs of stabilization. The number of loans that entered the foreclosure process totaled 1.07 percent of all loans in the third quarter, flat from the second quarter.

That number, however, likely reflects changes in state laws that delay or extend the foreclosure process and efforts to work out or modify loans that could still fall back into foreclosure.

Also, the total delinquency rate on subprime adjustable-rate loans remained just over 21 percent, down from a peak of 22 percent in the first quarter.

Of course, roughly 30 percent of Americans own their homes outright and are not reflected in the MBA's survey of about 45.5 million loans.

But with delinquencies still accelerating on many types of loans, efforts to stabilize the U.S. housing market are accelerating. The Treasury Department is now considering a plan to provide loans at 4.5 percent as a way to revive the U.S. housing market. The plan being considered would apply to new home purchases, not refinanced loans.

But some analysts worry that the government's plan will delay a necessary deflation of the housing bubble. With the government effectively lowering mortgage rates, housing prices could be prevented from falling to a more affordable level.

Any government assistance plan should exclude homes that are out of line with rents or other measurements of affordability, said Dean Baker, an economist and co-director of the Center for Economic Policy Research in Washington.

"It's absolutely counterproductive to try and prop up prices," he said.

Meanwhile, president George W. Bush publicly acknowledged for the first time Friday that the U.S. economy is in a recession and worried aloud that Detroit's Big Three automakers may not all survive their mounting troubles.

"Our economy is in a recession," Bush said flatly, speaking to reporters on the South Lawn. "This is in large part because of severe problems in our housing, credit and financial markets, which have resulted in significant job losses."

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Associated Press Writers Jeannine Aversa and Jennifer Loven contributed to this report.

Comments

[Sundialsvc4]

You can't offer a loan, at any interest rate, guv'mint subsidized or not, if the principal amount of the loan does not reflect the true value of the asset.

But if, instead, we evaporated a lot of that quite non-existent money off of our balance-books, while keeping the whole thing in balance, would we actually have lost anything at all? Do we really love all these big numbers that much?

Let's say "I bought a house for $400,000." Did I really? Probably not. I took a loan, and what I actually paid was a bunch of fees. What beefs me now is that the house isn't worth $400,000 but that's what I still owe. The house is worth $250,000.

Why not do the obvious thing? "Presto! Now you owe $230,000. The rest is forgiven."

NOW... you've got every incentive to keep the house. Sure, "$170,000 disappeared." But it never really existed in the first place. Your family is financially-stable again. The computers and disk drives at the bank really don't care either way.

[Pacojam]

Good point. Instead they are just giving all the financial institutions all our money.

[KillTheMessenger]

The $170,000 didn't disappear. They were being handed over by your lender to the old owner of your home when you closed escrow. That was not just some virtual money changing hands but the equivalent of good old printed dollars. You instructed the fed to "print them" when you took the loan. The old owner could have gone to his bank the next day and gotten real paper.

Sorry, Sundial, your logic is faulty. I know you wish it were as you say, but it's simply not. You owe the money because you spent the money. You just didn't get your money's worth. "Buyer beware" they say. And they mean it.

[4TJefferson]

As Yogi Berra would say, "It is deja' vu all over again."

In the 1920's real estate was financed with guess what? Interest only loans! After the "Crash of 1929" guess what, people went to banks to withdraw all their money. After they withdrew all the money, the banks closed. After that, the banks could not loan any more money.

In September of 1930 Secretary of Labor Jim Davis said, "We have hit bottom and are on the upswing."

In August of 1931 Henry Ford shut down most of his automobile factories.

By 1932 the unemployment rate in the USA was at 24%.

"Those who do not learn from history are doomed to repeat it."

[Peter007]

Some ideas....You need to know the difference between money and wealth. If you don't know the difference, the people with the printing press will always be your rulers.
Next, Inflation has been built into or economy since the Federal Reserve was established in the 1920's. The dollar has lost 95% of its value since then.
Next, Inflation is a tax. Inflation is a tax. Inflation is a Tax.
The $10,000 you had saved in 1960 is worth maybe $2,000 today. Yet the government is able to extract more money from you.
Inflation forces people to buy hard assets. In the past 10 years, most people have all of their net worth in a house. Using leverage, credit, a family is able to increase their net worth and stay ahead of inflation by buying as many hard assets as they can. If you don't, you lose. The game ends when inflation ends. Like musical chairs. Only this time, deflation appeared. Now everyone playing the game is caught. The government never wanted deflation. They have been promoting Inflation. The rules changed too quickly and unintentionally.

[KillTheMessenger]

If you bought "hard assets" in the real estate market a few years ago, you lost big time because they were going far above what they should have. There is a tax on those hard assets, too, by the way. It's called real estate tax, water bill, heating bill, electricity bill, roofing bill etc.. If you add it all up, a typical single family home is one of the crappiest investments imaginable, certainly much worse than a savings account.

[elizaconnors]

It is time to start listening to Sheila Baird who has been shouting into the wind that something needs to be done to support the individual homeowner. We should also think hard about what the economists at Columbia have been saying for months about reducing the interest rates on all home mortgages to 5%.

I know, I know. It's not fair. I think we went well past fair when we handed banks money so they could buy other banks and reward their shareholders with dividends. We need to stop taking money away from middle class taxpayers and handing it to rich folks.

Reducing mortgage rates across the board is a good place to begin.

[Peter007]

I think reducing rates across the board is a good idea too. The devil is in the details. Its not easy to do. The federal reserve has been trying to get rates lower but they haven't succeeded. We don't have a king of the world working in Washington. The Fed. has been able to lower many rates but so far the mortgage rates have stayed high. This past week, the treasury initiated some new steps to bring down rates. You saw in 2001 and 2002 the Federal Reserve attempted to bring liquidity into the stock market because the market fell from 5000 down to 1500. That liquidity meant for the stock market ended up in the housing market instead. .Its the law of unintentional consequences. .. Watch closely, the billions being pumped into the system is going to affect some commodity in the future. It will be big. Oil at $200 or Gold at $2,000 ? No one knows.. The law of unintentional consequences.

[elizaconnors]

The plan is to rewrite all mortgages. The gov't makes up the difference.

[KillTheMessenger]

People without a job can't even pay 5% interest. It ain't matter how low you set the bar for them, they can't make it across.

[tomas0808]

My dad always used to tell me "Don't borrow money, especially from banks." This was when house prices rose and mortgages went from 5 to 10 years, in the 60's. Since then it's been getting worse and worse. I listened to him, and saw that the whole thing was unsustainable and would eventually collapse, even if both partners worked, even if they worked 80 hours a week, even if they followed the rules.

[KarateKid]

I think 1 in 10 is low. There are many more on the brink, just one loss of job from it. It's a trap you can't get out of. Most mortgage holders owe more than the property is now worth. If you tossed them into the mix, the number gets much, much higher.

The American Dream is collapsing, and you would think the government would begin here instead of the financial institutions and auto and other industries asking for a bail out. Everyone says bad mortgages are the root cause that created this crisis, so why is no one helping distressed mortgage holders. I'm not talking about the investors and flippers, but the legit mortgage holder who lives in the home.

It also makes one wonder why banks are not more aggressively trying to solve this by making mortgages mroe affordable to distressed homeowners; instead, they play hardball and end up with no payment and a property they don't want.

[tomas0808]

The root cause is the banks and it started in the 60's. That's when houses (at least in the Seattle area) went from about 20,000 dollars to about 100,000 dollars over the space of a few years (1965-69) while wages didn't go up. There should have been some legislation put forward at the time, to tie house prices to the general rate of inflation and not let the banks manipulate prices so they could squeeze more interest out of people having to take out bigger and longer loans. When I got out of high school, that 20,000 dollar house was 200,000 and now it's a half million. Here are some facts. If the minimum wage had increased at that rate it would be 70 bucks an hour. And if that house had been tied to the general inflation rate it would be 120,000 dollars, not a half mil. Think about that. But the banks got their way, politicians who brought up these facts were shut down ala Spitzer and the people were inundated with advertising telling them it was all okay. Make no mistake. This is a crime. Corporations, banks, advertisers, and the politicians who let them get away with it are mortal enemies of the people

[WonderingNThinking]

I agree. If mortgages hadn't been invented, the house you could buy would be related to your salary and would be purchased in cash. Perhaps a standard house for a person making 50K/year would cost $50K - a two bedroom, two bath, modest home. If you wanted something nicer, it's $75K and you'd save a bit more to get it. In the current situation, the extra money is just all going to bankers. We have been conditioned to buy as much as we can afford, on a payment basis. Then we end up paying half our salary for 30 years to hope we own the house at the end of the term.

[WonderingNThinking]

We're also conditioned to buy things before we have saved the money for it.

[Peter007]

Tomas,
We operate in a system, A paradigm if you will. There are maybe 25 components of the system and each component has thousands of members. . Its called the housing market and it includes home buyers and investors in Chile. The system relies on Inflation. The government needs inflation. Inflation is a Tax. Believe me. Inflation is a tax. Its the best tax because you don't see it. Some of the parts of this paradigm broke. Now the entire system is shutting down. The government is attempting to fix those broken component's so the system can begin operating again. The government is attempting to start some inflation so the wheels will begin moving again. Deflation is bad for the government because it reduces their taxing power. Thats why you see huge deficits at the state and federal levels. Deflation will tear the fabric of our society and thats bad for those in power.

[sonoffestus]

Banks do not give a hoot about distressed homeowners. Banks knew they would get bailed out if need be. Now they're buying each other with our "loan" to strengthen their market share. They're just trying to figure out who among them is going to be the last one standing. They don't even like each other, unless there is something it it for them.

[meemu]

Seems obvious to me, you help the people who LIVE IN the houses. No help for the investors--we already were forced in to helping them. Let them 'reap the wages' of their sins......

[DFL]

THANKS FOR THE MESS REPUBLICANS, THANKS BUSH VOTERS, THANKS MONICA, THANKS NADER.

[ErnestineBass]

Nader?

Gimme a break...

[irescream]

republicans give me a break

[Louisfreeze]

China to buy up United States homes? Hmmm....

http://www.ft.com/cms/s/0/582d470c-c307-11dd-a5ae-000077b07658.html?nclick_check=1

[Peter007]

Generally speaking its not a good idea to influence pricing. But not this time. The monetary policy of the federal reserve got out of control 8 years ago. The effect was a housing bubble that kept inflating. Political courage to slow the unrealistic rise was lacking because it meant a reduction in GNP and economic prosperity. The economic engine during the past 10 years has been housing appreciation. Incomes did not keep up with prices. The out of control spending in Washington and State capitals relied on the continuing Housing bubble. Without it, spending would have to be limited.
Creative financing allowed prices to appreciate. Now the market is correcting itself but the drop in prices is too much for the economy to handle. The medicine is killing the patient. The correction is too severe. The Federal Reserve and Treasury needs to inflate assets to stabilize markets.
For the future, the power of the federal reserve needs to be examine and maybe curtailed or even eliminated. But for now, It needs to provide for a soft landing in this economy.

[Rule Of Law]

A universal roll back is the only answer here, as well. Give the banks a choice--you want to stay in business? Then offer everyone of these endangered loans the deal of a lifetime, with built in step ups over 30 years to normalcy. Better than losing 10% of your book, being stuck with devalued homes you can't resell that only continue to drag down the value of your other loans.

[Peter007]

I hear that idea a lot. In theory it would be nice. I've worked in the foreclosure business many years. The problem is that with a thousand houses you have a thousand different scenarios. Two loans on a house, two different banks with loans on the same house. Who do you give the break to? Only the bad customers? Would people go into foreclosure just to lower their balance? Do investors and flippers get a break? Who is an investor or flipper? Many banks have good loans and don't want to participate. What are the tax implications?. A loan forgiven is a tax liability to the homeowner. Do you have to lower the balance on a foreclosure even when the house has been destroyed by vandals? Banks make money on mortgages because they like cookie cutter products. Individual cases that are unique are a nightmare for banks. They need a book on guidelines to make a decission. Banks aren't capable of being that innovative.

[ErnestineBass]

Banks that cannot adapt to changing market conditions should fail.

That's capitalism, baby.

[Hobbit78]

First of all, if a pure free market system worked, a game of "Monopoly" would last for decades without ending.

My idea of a rescue plan would be to refund 50% of everyone's 2007 income taxes across the board ($700b is half of the $1.4t the IRS collected).

Have the federal government offer mortgage bonds @ 5% and use the money to offer 5% fixed mortgages on existing PRIMARY residences. The duration of the mortgage can be varied to match the homeowner's situation, 5, 10, 30, or even 40 year notes.

This would reward those who acted responsibly (with a handsome rebate they can invest), and give a lifeline to those who didn't (with a managable mortgage). At the same time, no one would feel their hard earned money was given to someone else. The best part is that those with fancy ways to avoid paying their fair share of taxes, or none at all, would get their fair share back.

Just a thought.

[OneLiberalLady]

Just to answer one of your questions, the breaks should be limited to primary residences. That should not be hard to figure out.

[KillTheMessenger]

Many of the people they loaned money to will never pay back, not even in a hundred years. That's why they had to give out interest-only mortgages... the payback time on those is infinity. See the rather trivial theory of compound interest.