Foreclosures on prime fixed-rate mortgages in the U.S. jumped to a record in the third quarter as unemployment strained household budgets of the most creditworthy borrowers.
The inventory of homes in foreclosure financed by prime fixed-rate loans rose to 2.45 percent from 2.36 percent in the previous three months, the Mortgage Bankers Association said in a report today. New foreclosures rose to 0.93 percent from 0.71 percent. Both numbers were the highest in the 12 years since the Washington-based trade group started tracking the categories.
Homeowners are falling behind on their mortgage payments as job cuts make it difficult for them to cover their bills, said Michael Fratantoni, the Mortgage Bankers Association’s vice president of research and economics. The unemployment rate has stayed above 9 percent for 18 consecutive months, the longest stretch since 1983, according to the Bureau of Labor Statistics.
“The increase in these plain-vanilla type of loans to the highest numbers ever show us it really is being driven by the economic environment,” Fratantoni said in a telephone interview. “It’s not going to turn around until we get more significant job growth.”
New foreclosures against all types of mortgages, which also include subprime, rose to 1.34 percent, the highest level in a year, according to the report. The overall inventory of loans in foreclosure dropped to 4.39 percent from 4.57 percent as some mortgages were modified by servicers, companies that administer payments. Those modified loans may reappear as foreclosures in future quarters because of redefaults, said Fratantoni.
The share of mortgages with overdue payments dropped to 9.13 percent in the third quarter from 9.85 percent in the prior period, the trade group’s report showed. The rate was 9.64 percent a year earlier.
The decline was led by mortgages 90 days or more overdue, those most likely to go into foreclosure. That category fell almost half a percentage point from the second quarter to 4.34 percent, which may also be a reflection of the increase in modified loans, Fratantoni said.
“The modification programs have helped a number of borrowers, but at the same time we do see redefault rates of around 50 percent at 12 months,” Fratantoni said.
Servicers modified 108,946 mortgages in the second quarter using the Obama administration’s primary anti-foreclosure plan, the Home Affordable Modification Program, or HAMP. That was an 8.7 percent increase from the prior period, according to U.S. Treasury Department data. Using private programs, the companies altered an additional 164,473 home loans, a gain of 25 percent, the data show.
Almost half of the mortgages modified in 2009’s first quarter, before HAMP began in March of that year, were overdue by 90 days or more in this year’s second quarter, according to Treasury Department data. Mortgages overdue by more than three months typically are considered in default, while home loans overdue by fewer days are called delinquent.
Modifications using the HAMP guidelines have a better track rate than non-government programs, the data show. Six months after changing mortgage terms, 11 percent of HAMP modifications were delinquent, compared with 22 percent of loans renegotiated using other means, according to Treasury.
HAMP lowers mortgage payments to about a third of borrowers’ income by temporarily reducing interest, lengthening the term of the loan and deferring principal payments.
Today’s Mortgage Bankers Association report doesn’t include much data related to foreclosure freezes that began in late September after questions arose about the integrity of court filings, Fratantoni said. Attorneys general in all 50 states are conducting probes into foreclosure practices after allegations surfaced that mortgage industry employees signed legal documents without ensuring their accuracy.
“We really don’t know what impact the halt will have, though it certainly will put upward pressure on some of the foreclosure numbers,” Fratantoni said. “We’re looking to the fourth quarter or 2011’s first quarter to see the results.”