The Mortgage Meltdown

Mortgages: No relief in sight

  • Article by: H.J. CUMMINS , Star Tribune
  • Updated: March 23, 2011 - 1:15 PM

Mortgage delinquency and foreclosure rates hit records last quarter. And more prime borrowers are being affected.

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A record 9 percent of U.S. homeowners with mortgages were either behind on their payments or in foreclosure at the end of June, as damage from the housing crisis continued to mount, according to an industry group’s report. Above, a foreclosed home in Chandler, Ariz.

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About 4 million U.S. homeowners -- including more than 65,000 Minnesotans -- were either behind in their mortgage payments or in foreclosure at the end of June, according to a second-quarter survey released Friday by the Mortgage Bankers Association.

That national total, representing 9.16 percent of mortgage holders, is a record in the 29-year history of the survey. The report also shows the first statistical flip in the current loan crisis, with a drop in subprime delinquencies and an increase among some prime mortgages.

National and Minnesota housing analysts blame a delayed wave of problems with prime adjustable rate mortgages, as well as continuing bad economic news for families.

"Anecdotally, what we're seeing now is not so much funky mortgages or bad loans, but a return to the more traditional reasons people find themselves in foreclosure -- death, divorce, loss of a job and or change in income," said Julie Gugin, executive director of the Minnesota Home Ownership Center, which has mortgage-crisis counseling centers across the state. "Gas prices and food prices are going up, and if one line of a family budget changes, suddenly their mortgage isn't affordable anymore."

The worsening housing crunch was apparent in several ominous records in the quarterly survey by the Washington-based association of real estate finance professionals.

Mortgages are at all-time high delinquency rates -- 6.41 percent of loans were at least one payment past due but not yet in foreclosure. A record number of loans -- 1.08 percent -- went into foreclosure in the quarter, and 2.75 percent of the country's 45 million loans were in foreclosure by the end of June.

Delinquency rates for subprime mortgages still outpaced prime loans, 18.67 to 3.93 percent. But among the adjustable-rate versions of the loans, the rate of delinquent subprime borrowers dropped from 22 to 21 percent; prime borrowers in default rose from 9.7 to 11.3 percent.

The highest delinquency rates were in California and Florida, where housing markets have seen some of the biggest price drops. But across the country borrowers are facing higher prices for fuel, heating costs and groceries, plus unemployment is rising, economists said. On Friday, the U.S. Labor Department put August's national unemployment rate at 6.1 percent, a five-year high.

Minnesota back at 39th

In Minnesota, the total second-quarter delinquency rate was 4.54 percent, or more than 41,200 mortgages, placing it 39th in state rankings. Almost 2.7 percent, or 24,500, were in foreclosure, putting the state at 12th.

To Tim Bendel, president of the Minnesota Mortgage Bankers Association, that gap is encouraging.

"The foreclosure rate may be high, but the delinquencies behind it that would keep those foreclosures coming are easing," Bendel said.

He's also not surprised that problems with prime mortgages are catching up to subprime loans.

"We're basically coming up on a two-year anniversary of those more or less being gone, so you don't have new subprime loans contributing to the problem," Bendel said. The problems in prime mortgages include those financed against 100 percent of the home value in peak markets, and later rate adjustments just now showing up.

Bendel is also encouraged by incremental increases in property values in certain pockets of the real estate market, including some of the western Twin Cities suburbs.

But Gugin expects next year's foreclosure numbers in Minnesota to match the 28,000 projected for this year by HousingLink, a data research agency based in Minneapolis.

"And our counselors see some of the highest incidence of foreclosures in ... Isanti and Wright counties. It's very much a suburban problem."

H.J. Cummins • 612-673-4671

  • about this series

  • This is an occasional series examining the effects of the collapse of the housing market.
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