U.S. Mortgage Foreclosures Rose in Fourth Quarter (Update1)

By Kathleen M. Howley

Feb. 19 (Bloomberg) -- A record number of Americans were in danger of losing their homes in the fourth quarter, even as new delinquencies declined, the Mortgage Bankers Association said.

Loans in foreclosure rose to 4.58 percent of all mortgages, while those more than 90 days overdue -- the point at which lenders usually begin the process of seizing a property -- climbed to 5.09 percent, the Washington-based trade group said in a report today.

“We have a hard-core block of unemployed who have been out of jobs for a long time, and that’s keeping the long-term delinquencies high,” Jay Brinkmann, the association’s chief economist, said in an interview. “New entrants to the ranks of the unemployed have been falling, and that’s why we see the early delinquencies dropping.”

Government efforts to prevent foreclosures have been thwarted by the biggest employment contraction since the Great Depression. U.S. companies shed more than 7 million jobs since December 2007. The unemployment rate fell to 9.7 percent in January after hitting a 26-year high of 10.1 percent in October, according to the Bureau of Labor Statistics.

U.S. home prices began declining in 2006 after reaching a peak of almost four times the nation’s median household income, an increase that had stretched the ability of many buyers to meet mortgage payments.

Unable to refinance, the least creditworthy borrowers started defaulting on mortgages as interest rates adjusted higher and their monthly payments ballooned. The rate of subprime-mortgage delinquencies more than doubled in the two years ended last quarter, triggering $1.7 trillion of losses and writedowns for financial companies that invested in mortgage bonds.

New Delinquencies Decline

Today’s MBA report showed payments overdue by 30 days or more for all types of mortgages fell to a seasonally adjusted 9.47 percent in the fourth quarter from 9.64 percent in the prior three months, the first drop since 2007’s first quarter.

The delinquency rate for prime loans fell to 6.73 percent from 6.84 percent, and the share of subprime late payments fell to 25 percent from 26 percent.

“We usually have a spike in fourth-quarter delinquencies because of heating bills and Christmas bills, but this time we had a sizable decrease,” Brinkmann said. “It’s not the end of the crisis, but it looks like a big problem may not be getting much bigger.”

Obama’s Plan

President Barack Obama last year pledged to spend $275 billion to keep as many as 9 million Americans in their homes by refinancing properties that are valued at less than their mortgages and offering incentives to companies that modify terms for delinquent borrowers. The government also is offering a tax credit of as much as $8,000 for homebuyers who complete purchases before July 1.

The administration’s primary anti-foreclosure plan, the Home Affordable Modification Program, or HAMP, resulted in 116,000 permanent loan modifications by the end of January, compared with a goal of as many as 4 million by December 2012, the Treasury Department said in a Feb. 17 report. About 57 percent of permanent modifications were for borrowers coping with unemployment or a reduction in working hours or wages, according to the report.

In addition, 830,438 trial modifications were under way, the Treasury Department said in the report.

HAMP lowers mortgage payments to about one-third of a borrowers’ income by reducing interest, lengthening repayment terms and deferring principal repayments.

Refinancing Program

The government’s Making Home Affordable program has been responsible for refinancing more than 4 million loans in the portfolios of government-run Fannie Mae and Freddie Mac, according to the Treasury report. The refinancings allow some people who owe more on their homes than the properties are worth to lower their interest rates.

About one in every five U.S. homeowners with a mortgage is in so-called negative equity, according to a Feb. 10 report from Zillow.com, a Seattle-based real estate data provider.

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