U.S. Mortgage Delinquencies Rise for First Time in Year

The U.S. mortgage delinquency rate increased for the first time in a year as slowing economic growth left more borrowers struggling to pay their bills.

The share of home loans at least 30-days late rose to 7.58 percent in the second quarter on a seasonally adjusted basis, up from 7.4 percent in the previous three months, the Mortgage Bankers Association said in a report today. The rate for seriously delinquent loans, those more than 90 days behind, climbed to a seasonally adjusted 3.19 percent from 3.06 percent.

“It’s the first time it’s really picked up,” Michael Fratantoni, vice president of research and economics, said in a telephone interview today from Washington. “It’s reflecting weak job growth in the second quarter.”

An extended economic slowdown may spur more foreclosures and temper a housing recovery at a time when home prices are showing signs of a bottom. Gross domestic product grew at a 1.5 percent annual pace in the second quarter, compared with a 2 percent rate in the previous three months. The unemployment rate rose to 8.3 percent in July from 8.2 percent in June.

The non-seasonally adjusted delinquency rate jumped to 7.35 percent from 6.94 percent. Late payments tend to increase in the second quarter from the first, the banking group said. The adjusted rate was 8.44 percent a year earlier.

Foreclosure Starts

Lenders started foreclosure actions, defined as letters from attorneys, on 0.96 percent of mortgages in the second quarter, unchanged from the first quarter and a year earlier, the bankers group reported. About 4.27 percent of all loans were in the foreclosure process, down from 4.39 percent in the first quarter and 4.43 percent in the second quarter of 2011. Mortgage servicers slowed the pace of foreclosures in the fourth quarter of 2010, when they faced allegations of using improper and fraudulent paperwork to repossess homes with delinquent mortgages. The five largest servicers, including Bank of America Corp. and JPMorgan Chase & Co. (JPM), reached a $25 billion settlement with state and federal regulators in February.

States where home repossessions require judicial approval had the largest backlog of homes in the foreclosure pipeline, led by Florida, New Jersey, Illinois and New York. Maryland, another judicial foreclosure state, had the largest increase in foreclosure starts.

FHA Loans

Lenders stepped up actions against Federal Housing Administration loans, which became popular in 2008 and 2009 to allow buyers to purchase houses with low down payments, because legal obstacles to the filings were removed, Fratantoni said. The percentage of FHA loans in foreclosure rose to a record 4.23 percent in the second quarter, the mortgage bankers said.

“The jump was due to one or more large servicers of FHA loans restarting foreclosure actions on delinquent FHA loans after the completion of the Department of Justice review and the mortgage servicing settlement,” Jay Brinkmann, the group’s chief economist, said in a statement. “It does not, however, represent a significant decline in FHA performance. These loans had been considered seriously delinquent for some time.”

The delinquency rate has fallen from a peak of 10.1 percent in the first quarter of 2010, helping to limit foreclosures and stabilize home prices. The median sales price of single-family homes in the second quarter increased in 110 of 147 metropolitan areas amid low inventory, the National Association of Realtors said in a report today.

Price Jump

Freddie Mac, the U.S. government controlled mortgage company, said yesterday that home prices increased 4.8 percent from March to June, the largest quarterly gain since the second quarter of 2004.

The direction of mortgage delinquencies depends on employment for the remainder of the year, Brinkmann said.

“Until we see some pickup in job creation, until we see unemployment turn around, we really can’t see a fundamental improvement in the housing situation,” he said during a conference call.

The delinquency and foreclosure estimates are based on a survey of 42.5 million loans on one- to four- unit residential properties, representing about 88 percent of all first-lien mortgages.

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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