Home Foreclosures Set A Record

WASHINGTON — The foreclosure hammer is hitting ever harder. People lost their homes at the highest rate on record in the first three months of the year, and late payments soared to a new high, too _ an alarming sign that the housing crisis and its damage to the national economy may only get worse.

Dumping more empty homes on an already glutted market also is likely to put a further drag on home prices _ extending a vicious cycle.

Slumping home values are being blamed in large part for the rising tide of foreclosures. Troubled borrowers are left owing more to the bank than their homes are worth. They can't sell without taking a huge financial hit, so they just walk away.

In fact, Americans' equity in their homes _ usually their single biggest asset _ now has dropped to the lowest level on record in figures going back to the end of World War II. Homeowners' portion of equity fell to 46.2 percent, which means the amount of debt tied up in their homes exceeds the equity they have built up.

Watching their home values sink, consumers have pulled back on spending, a factor in the economy's slowdown. Buoyed by rebate checks, shoppers did get back in the buying groove in May, but analysts predict that consumers _ pounded by galloping gasoline prices _ will still be cautious.

"The economy is treading water, and the housing market is one of the undercurrents trying to pull it down," said Stuart Hoffman, chief economist at PNC Financial Services Group.

Nearly 1 percent, or roughly 447,723 loans, fell into foreclosure during the January-to-March period, the Mortgage Bankers Association said Thursday in its quarterly snapshot of the mortgage market. That surpassed the previous high of 0.83 percent over the last three months in 2007.

The report also found that more homeowners slipped behind on their monthly payments. The delinquency rate jumped to 6.35 percent _ or 2.87 million loans _ compared with 5.82 percent for the previous three months. Payments are considered delinquent if they are 30 or more days past due.

Both the rate of new foreclosures and late payments were the highest on record going back to 1979.

With prices expected to keep dropping, foreclosures and late payments "are going to continue to go up," Jay Brinkmann, the association's vice president of research and economics, told The Associated Press.

Homeowners with tarnished credit who have subprime adjustable-rate loans took the hardest hits. Foreclosures and late payments for these borrowers also swelled to all-time highs in the first quarter.

The percentage of subprime adjustable-rate mortgages that started the foreclosure process climbed to 6.35 percent. The rate was 5.29 percent in fourth quarter, the previous high. Late payments rose to 22.07 percent from 20.02 percent, the previous high.

The association's survey covers just over 45 million home loans.

More problems also cropped up with loans to more creditworthy borrowers.

The percentage of such loans falling into foreclosure was 0.54 percent, compared with 0.41 percent at the end of last year. Late payments rose to 3.71 percent from 3.24 percent.

The numbers were higher for those prime borrowers with adjustable rate mortgages. Initially low rates reset to much higher ones, making it difficult, if not impossible, for homeowners to keep up with monthly mortgage payments. The proportion of those loans falling into foreclosure jumped to 1.55 percent from 1.06 percent. The delinquency rate rose to 6.78 percent, compared with 5.51 percent.

"The number one problem is the drop in home prices," Brinkmann said. Declining prices, especially in newer built areas, "are hurting people's ability to recover when they run into trouble _ a divorce or loss of job," he said. "In other days, you could sell the home. But because home prices have fallen so much, in many of those cases, the homes are going into foreclosure."

California, Florida, Nevada and Arizona accounted for 89 percent of the total increase in new home foreclosures, he said. Those are places where prices have fallen sharply and there was a lot of home building, creating too much supply, Brinkmann said.

"These extra inventories from foreclosures complicate what is already a heavily built situation," said David Seiders, chief economist at the National Association of Home Builders.

After a five-year boom, the housing market fell into a deep slump two years ago. That dragged down sales, and prices with it. As the value of homes plummeted, many newer homeowners found themselves owing more on their mortgages than their homes were worth.

Nearly 8.5 million homeowners had negative or no equity in their homes at the end of March, representing more than 16 percent of all homeowners with mortgages, according to Mark Zandi, chief economist at Moody's Economy.com. He estimates that will increase to 12.2 million, or almost one out of every four homeowners, by the end of June.

Nearly three in 10 people say they are worried their home's value will decline over the next two years, according to a recent Associated Press-AOL Money & Finance Poll. Sixty percent said they definitely won't buy a home in the next two years. That's up from 53 percent two years ago.

As foreclosures and late payments climbed, financial companies took multibillion-dollar losses when their investments in mortgage-backed securities soured. A credit crisis spread, crimping other types of financing. The fallout plunged Wall Street in turmoil, disrupting the normal functioning of markets.

All those troubles have pushed the economy to the brink of a recession. Employers, cutting costs, have eliminated more than a quarter-million jobs in the first four months of this year.

To bolster the economy, the Federal Reserve made aggressive interest rate cuts. But with inflation on the rise, Fed Chairman Ben Bernanke this week sent his strongest signal yet that the central bank's rate-cutting campaign is coming to an end.

The Bush administration has urged lenders to freeze rates for some homeowners and encouraged lenders to rework mortgage terms so troubled borrowers can stay in their homes.

A congressional plan that includes a foreclosure prevention program has stalled as lawmakers figure out how to pay for it.

___

Associated Press Business Writer J.W. Elphinstone contributed to this report.

___

On the Net:

Mortgage Bankers Association: http://www.mbaa.org/

Comments

[outnow]

A new political party will likely be formed in 2010 to combat hyperinflation. This is not a good sign. We are reaching a crisis and it ain't goin' away any time soon.

US inflation data goes back to 1665. It was fairly stable until the time of the Fed's creation in 1913. The gold standard was abandoned in 1933 by FDR because the banking system collapsed, money supply imploded, and economic stimulus was needed. Since then, the Fed created money freely. Inflation began rising in the post WW II although government calculations tend to mask it. There has been a slow motion destruction of the US dollar's purchasing power since 1933. If you use generally accepted accounting principles (GAAP) the federal deficit has increased 4 trillion for the fiscal year of 2007, according to Walter "John" Williams who runs a Shadow Government Statistics" site on the internet.

The US will either have to default on obligations, declare a moratorium or repudiate the entire amount of its obligations of between 62.6 trillion and 80 trillion - using revised realistic figures. Soaring oil and food prices indicate with unemployment adjusted to reality figures of 12% indicate inflation in the US of 12.5%. The problem is fiat money. The M3 is at a near 18% annual rate. When US Treasuries are dumped, then the bottom is here. A double-dip contraction started in 1999. With a bump or two up, it is relentlessly taking us to the brink of a market crash.

[seawolf77]

Why is there no national dialogue to reduce consumption of petrol? Why? Finger pointing , petulant , complaining Americans is not a pretty sight. Grown a pair. Insert a spine. Pull up the old boots. We have lived extravagantly for so long now, everyone has forgotten things can get tough. Home prices WERE a speculative bubble fueled by cheap energy. You drove till you qualified as they say, and then while you were there you built as many square feet as possible. McMansions. Now you can't afford the drive to work (if you still have a job) and soon you won't afford to heat and cool all those empty rooms. But oil is NOT a speculative bubble. Oil is energy. Energy is power. Energy creates wealth. And now it's getting scarce. Put those 2 together and what do you have. A contratcing America. There's no way around it. It's a brave new world. AMERICA MUST ENACT A 4 DAY WORK WEEK NOW !!!!!!!!!!

[swift_goat_pet_for_truth]

Is this a new post, or one from two weeks ago?

I can't tell anymore.

And ditto on the oil price/ gas price/ unemployment/ McCain says we are winning in Iraq posts.

[loki]

With all these foreclosures, and the corporations getting all the rate breaks and tax payer subsidized , no need to pay back according to the Fed Chair himself, loans.. they will be able to pick up these properties cheap and turn them into rentals! Neo Con Utopia. Cheap labor, indentured servant slaves due to the large influx of illegal labor and off shoring for low wages making employment a rarity here in the states, and maybe soon no more social programs for the public, which means more for corporations and war funding. Ah , Reaganomics are bliss.... For a chosen few.

[Softnsweet]

Will someone please get Bush out of office. Please put a dem in office.

[loki]

Reaganites are rejoicing at the news. Homes in foreclosure, job losses, dollar drops, oil high and war run a muck in the world. This is the "train Wreck" Reagan and the Neo Cons have been working for ever since his presidency. Unfortunately Ronny is dead and can not see the rewards of what he started. Unless something changes, it wont be long now and social security, Medicare/caid, education, roads and bridges and other social programs that help the masses , will be terminated to save corporate welfare and war spending. The Republican Nirvana is near. Reagan , the father of the Train Wreck will go down in Neo Con history as the man who saved corporate welfare!

[Rule Of Law]

"To bolster the economy, the Federal Reserve made aggressive interest rate cuts."

Whose economy? Not the homeowners because those low rates have not found their way down to the consumer banks. They have done only what we have come to expect them to do--give Themselves more of our money.

[gakabani]

Exactly, the rate cut is for them not us.

[vandegrasse]

Looks like a depression to me.
http://youtube.com/watch?v=3hW-J5Gyvt8

[EinChicago]

The most starling part is that of those 1 million, 550,000 are located in Arizona, CA, NV, FL and MI. So 5 states have 55% of the national foreclosures, while the remaining 45 states are averaging 1% each. That's insane.

[ThinkLiberal]

The rabid Bushies of 2000 and 2004 should be very proud of themselves right now. I am sure that they have no problems with the insanity of paying $5 a-gallon for gas, $4 a gallon for milk, $4 for a loaf of bread ($3 for a dozen apples?!), let alone loosing their home to foreclosure. They voted for this now-manifesting meltdown TWICE!! I have absolutely NO SYMPATHY for people who so foolishly allowed themselves to be bamboozled and sodomized by the GOPoopers and are now buckling under the weight of their stupidity. The sad thing is that there were so many of them that an utter moron and his band of dimwits were allowed to cross the threshold of the WH and assume power, and now we are all paying for their idiocy.

If these Bush-league voters did not even possess the most basic judgment to see that Dumbyah was a complete incompetent man-child who was taking them for a joy-ride, then you really have to wonder how screwed-up the other areas of their personal lives are, especially those that require critical, deliberate thinking and the weighing of action vs. consequences. I wager that they are probably just as incompetent in their relationships, family life, jobs, etc. And to see these same people fawning over McSame is almost a surreal spectacle in abject stupidity. It's simply amazing.

[JoeBlough]

It's a shame that it is easier to get rid of a bad spouse through divorce than it is to get rid of a bad politician.

[Softnsweet]

Ditto

[MajorKong]

I guess selling our houses to each other wasn't the best thing to base the economy on.

[VivaZapata]

and yet at least four out of the five trading days, the business pundits, who are dumber than the proverbial sack of rocks, blab on and on about how we're at or nearing the end of the housing crisis. they whine about how the fed should give them another breast to suck on while they talk of cheap labor markets as a good thing. the guillotine is too good for some people.

[CaptainHowdy]

LOL... 50% of all the Alt-A loans originated in the last 8 years, reset starting next year sometime.

This will be as bad, and perhaps even worse, then the credit crisis that we just went through. Only this time, I'm not so sure that the Fed has any more tricks up it's sleeve.

[WIpatriot]

I think it's fine for all of them, Z

[VivaZapata]

yeah, you're right, but i'd much rather have them live---but in the kind of conditions they, through their corporate orientation, force others to live in. In other words, misery.

[texastrixie]

And this is just the beginning of the worst of it. Supposedly most of the mortgages due to have huge upticks won't see that happen until mid/late summer. Then if it takes approximately six months to go into formal foreclosure, it will be early next year before we really start to see the downturn.

[KillTheMessenger]

And you ain't seen nothing, yet...

[dadw5boys]

Yeah the Commerical Foreclousers are just starting.

2.9 trillion in Commerical Loans about to go bad!!!

[fact finder]

dad; Sounds like 1929 don't it.

[outnow]

The dot.com asset bubble was a fraud. The housing bubble was a fraud. The oil and food bubble is a fraud. Our country is based on some very shaky assumptions. Inflation is eating up the illusory profits for retirement for the baby boomers. With a falling dollar, gains in the stock market do not even keep pace with inflation. The financial problems are systemic. A major overhaul is going to be needed as America falls behind economically. Military might will not bring financial success. It is the last gasp of late stage capitalism where nothing is being produced in our country. When "financial services" accounts for more of the GDP than does manufacturing, you are in late stage capitalism where controlling third world resources - otherwise called neocolonialism - is the only avenue to survival. Our military is being used to "promote commerce." The third world is not using the World Bank and the International Monetary Fund because of its privatizing and neoliberal policies. House prices should never have been as high as they are in the first place. Speculation is a way of life for the investor class. Working people need to live also. That's the real problem - government policies have driven the cost of labor to nothing so there are too few consumers to drive the consumer-driven economy. Our debt is killing us.

[Paul]

Exactly.

If enough banks get stuck with enough over-priced and foreclosed homes, maybe some much needed regulation will be forthcoming.

[studlyguy]

The next Prez is going to be handed a country in despair and destruction with the housing,credit,job losses,infrastructure collasping,oil and food prices killing what's left of the American economy, better have a plan, FAST!

[KillTheMessenger]

Oil and food prices will be staying high, no matter what. They are based on systemic problems with supply and our overblown lifestyle. Credit markets can be regulated. Jobs can be created with alternative energy project. They can't outsource the guy who puts solar panels on your roof and insulation in your walls. Manufacturing jobs for efficient cars can be brought back to the US. Toyota will absolutely not mind building factories for their hybrids in the US for a 15 or 20 year tax reduction on profits made here. Import taxes on carbon intensive products can lead to enormous local manufacturing activity. All things the next democratic president will do.

Of course, if too many people vote for John McSame, we'll be screwed.

[thegreatgiginthesky]

Doesn't Toyota already build their Trucks in the US? I'd say give companies tax breaks to create plants in the US, instead of tax breaks to take jobs out of the US.

[thegreatgiginthesky]

Yep. I hope things turn around because this economy totally sucks. The housing boom is never coming back. Once the regulation is back in place we will see more sanity. Wall street bonuses should return back to normal. One thing that won't go back is the price of gas.

[ErnestineBass]

The sad truth is, just like Jimmy Carter, our next Pres will inherit an economy sapped by an idiotic, unnecessary war.

And if WE don't remove the lobbyists, war profiteers and deregulators from that viper's nest called Congress, absolutely nothing will improve. It will only get worse.

[drkazmd65]

Absolutely true EB,... absolutely.

The new President is going to have to chose between fighting inflation and raising (and holding) interest rates high - which will inhibit economic growth, or growing the economy and allowing inflation to run up some more.

At the same time, the Government debt and defecit are going to simultaniously force raising of at least some taxes, along with cutting or at least redirecting spending. All this while the economy figures out either how to get along without cheap oil, or groans under the strain of switching out to biofuels, solar, and increased use of coal to power electric grids.

It is going to take a real leader to walk us though the next couple of Presidential terms. And that leader is going to make a lot of people unhappy with him on the way.

I suspect that whomever is elected is looking at one term. Reminds me of what happened to Carter at many levels. But - will we the people react the same way? That is the real question.