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Foreclosures Hit Record

by Peter G. Miller
September 6th, 2007

The Mortgage Bankers Association (MBA) reported today that foreclosure rates have reached record levels.

This, of course, is awful news for enormous numbers of homeowners nationwide.

“There is a clear divergence in performance between fixed rate and adjustable rate mortgages due to the impact of rate resets,” says Doug Duncan, MBA’s Chief Economist and Senior Vice President of Research and Business Development. “While the seriously delinquent rate for prime fixed loans was essentially unchanged from the first quarter of the year to the second, and the rate actually fell for subprime fixed rate loans, that rate increased 36 basis points for prime ARM loans and 227 basis points for subprime loans.”

Duncan argues that much of the current downfall is due to economic problems in four states: “California, Florida, Nevada and Arizona have more than one-third of the nation’s subprime ARMs, more than one-third of the foreclosure starts on subprime ARMs, and are responsible for most of the nationwide increase in foreclosure actions.”

The problem, however, is much broader than subprime ARMs. The problem is that toxic ARMs are resetting and large numbers of people can’t pay, whether they are subprime, Alt-A or prime borrowers.

Even the MBA says “the performance of prime and subprime adjustable rate mortgages (ARMs) is contributing significantly to the overall results.”

Higher foreclosure levels also mean there is more need for the FHASecure program. Unfortunately, for very large numbers of homeowners the HUD program will be too late.

Below is more from today’s MBA release:

The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 5.12 percent of all loans outstanding in the second quarter of 2007 on a seasonally adjusted (SA) basis, up 28 basis points from the first quarter of 2007, and up 73 basis points from one year ago, according to MBA’s National Delinquency Survey.

The delinquency rate does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process was 1.40 percent of all loans outstanding at the end of the second quarter, an increase of 12 basis points from the first quarter of 2007 and 41 basis points from one year ago.

The rate of loans entering the foreclosure process was 0.65 percent on a seasonally adjusted basis, seven basis points higher than the previous quarter and up 22 basis points from one year ago. This quarter’s foreclosure starts rate is the highest in the history of the survey, with the previous high being last quarter’s rate.

Similar to last quarter, the national delinquency and foreclosure rates are being driven by what is taking place in a few large states. Additionally, the performance of prime and subprime adjustable rate mortgages (ARMs) is contributing significantly to the overall results.

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