PREVIEW/Barron’s

 | MONDAY, FEBRUARY 15, 2010

Dirty Little Secret

That Other D-Word

By ROBIN GOLDWYN BLUMENTHAL | MORE ARTICLES BY AUTHOR

A look forward to those events scheduled for next week.

IF AMERICANS SEEM SCARED ABOUT Wall Street bailouts and high unemployment, their bankers must be petrified, judging by the latest mortgage statistics.

Rising default rates are hiding a fresh cascade of delinquencies that threaten to bury banks and undermine the government programs offering mortgage relief, according to the December survey by Lender Processing Services, based in Jacksonville, Fla.

"The problems are mounting so quickly that any policy changes will be swamped," says Ted Jadlos, head of the analytics division of LPS, which collects data for many of the country's biggest banks. "It's like trying to drink from a fire hose. One in seven loans is seriously behind, and the number's growing."

At year end, LPS counted 6.5 million borrowers with serious delinquency problems or in some state of foreclosure, or bank sale -- nearly twice the number of homes in America's multiple-listing service.

Worse, of the 6.5 million problem loans, 2.3 million of them, or 35%, were in good standing in early 2009. "The rate of loan deterioration is roughly six times what it was in 2006." The result: Even lower home prices.

The bankers are giving their borrowers more leniency. In New York City, the average loan in foreclosure was 18.5 months overdue, compared with 11 months in early 2008. Long-delinquent loans complicate sales.

So the next time you're at a party and wondering, "How is that fellow down the street making ends meet -- paying his bills and feeding his kids while unemployed?" He isn't.

-- Jack Willoughby