U.S. home foreclosures set record, likely to keep rising

One in seven U.S. home loans was past due or in foreclosure as of Sept. 30, putting that quarterly delinquency measure at its highest level since 1972, when the Mortgage Bankers Association began reporting it. At the beginning of this year, one in 10 loans was past due or in foreclosure.

The continued surge in delinquencies suggests a recovery in the housing market could be stalled by the worsening job picture as well as by further fallout from the easy-money lending that prevailed during the boom years.

Signals about housing have been decidedly mixed. On the bright side, median home prices appear to have stabilized — for the time being, anyway — in hard hit areas of California such as the Inland Empire, and have begun to inch up again in San Diego and Orange counties and in San Francisco.

But recent negative indicators, in addition to rising foreclosures, include the home lender group's report Wednesday that applications for mortgages to buy homes have declined for six straight weeks despite interest rates below 5 percent on 30-year fixed-rate loans. Also Wednesday, the Commerce Department said the seasonally adjusted rate of housing starts fell more than 10 percent in October from the previous month.

Overall, 14.41 percent of all U.S. home loans were in foreclosure or at least 30 days past due at the end of the third quarter — one in seven, and up from 13.16 percent in the second quarter.

As it has for some time, the group's report on delinquencies blamed job losses, not tricky adjustable-rate loans, for causing most of the recent pain.

The mortgage group's chief economist, Jay Brinkmann, said he expected the delinquencies to keep rising until the unemployment rate tops out.

Normally, foreclosures would continue rising for two quarters past the peak in delinquencies, he said. However, given the extreme decline in home prices, Brinkmann predicted the foreclosure rate would rise for longer than usual past the peak in delinquencies.

Four Sun Belt states where the housing bubble inflated the most and exotic lending was most prevalent — California, Florida, Nevada and Arizona — accounted for 43 percent of the foreclosures started in the third quarter.

Prime loans — those made to the borrowers with the best credit — continued to make up a growing percentage of troubled mortgages. Such loans accounted for nearly 33 percent of new foreclosures last quarter, compared with 21 percent a year ago, when high-risk subprime loans made during the housing boom were the main reason for default.

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