NEW YORK - The mortgage crisis is spreading and hitting new heights: Borrowers with good credit now make up the largest share of foreclosures as job losses and pay cuts exact their toll.
A record 12 percent of homeowners with a mortgage were behind on their payments in the first quarter, the Mortgage Bankers Association (MBA) said Thursday. The trend is predicted to continue until the end of next year, about six months after unemployment is expected to peak.
The genesis of the recession -- risky adjustable-rate loans (ARMs) made to borrowers with bad credit -- remains a significant factor in foreclosures. Today, almost half of all subprime ARMs are past due or in foreclosure. In Florida, New Jersey and New York the number is above 55 percent.
When those borrowers started defaulting in droves in late 2006, it forced dozens of lenders out of business and sparked a credit crisis in summer 2007. Businesses nationwide couldn't get short-term loans to finance new orders or even cover their payrolls. Economic production began shrinking at the end of 2007 in what has become the longest recession in the United States since World War II.
The impact has now filtered out, consuming homeowners who until recently had a good record of paying their bills on time. Nearly 6 percent of those prime borrowers with fixed-rate mortgages were past due or in foreclosure, nearly doubling in the last year.
"These [borrowers] are the best of the best out there," said real estate analyst Mike Larson with Weiss Research in Jupiter, Fla. "Clearly, borrowers far and wide are getting hit by this."
The worst of the trouble continues to be focused in California, Nevada, Arizona and Florida, which accounted for 46 percent of new foreclosures in the country and reported the worst delinquency and foreclosure rates on prime fixed-rate loans. The four have suffered massive job cuts in the housing industry. There were no signs of improvement.
But experts expect the pain to spread throughout the country as job losses increase. MBA's chief economist, Jay Brinkmann, estimates the unemployment rate will peak in mid-2010 and foreclosures to abate about six months later.
The number of newly laid-off people requesting jobless benefits fell last week, the government said Thursday, but the number of people receiving unemployment benefits reached 6.78 million in mid-May, the highest on record.
The continuing rise in unemployment, which economists say could reach double digits, means more trouble for the ailing financial system and the economy. Lower incomes and lost jobs are the No. 1 reason people lose their homes through foreclosure.
