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U.S. Mortgage Foreclosures Fall From Record on Employment

American household budgets are improving as employment increases, wages rise and consumers limit new debt. Photographer: Jacob Kepler/Bloomberg
American household budgets are improving as employment increases, wages rise and consumers limit new debt. Photographer: Jacob Kepler/Bloomberg

May 19 (Bloomberg) -- Mortgage foreclosures declined in the first quarter from a record high as U.S. employment and personal income rose, a sign the economic recovery may be helping to limit defaults.

The share of home loans in foreclosure fell to 4.52 percent from 4.64 percent in the prior three months, the Mortgage Bankers Association said in a report today. New foreclosures slid to 1.08 percent of loans from 1.27 percent.

American household budgets are improving as employment increases, wages rise and consumers limit new debt. More than 500,000 workers got jobs during the first quarter while U.S. personal income gained 2.1 percent, according to Labor Department and Commerce Department data. A Federal Reserve gauge tracking the amount of disposable income going to mortgage and credit card bills shrank to a 12-year low at the end of 2010.

“As the economy has improved, as job creation has improved, we are beginning to see that reflected in the foreclosure numbers,” Jay Brinkmann, chief economist of the Washington-based mortgage bankers group, said in a telephone interview. “Real estate markets reflect what’s going on in the rest of the economy.”

Seriously Delinquent

The so-called seriously delinquent rate, or mortgages more than three months late including foreclosures, dropped half a percentage point to 8.1 percent, according to the report. It was the biggest decline since the beginning of the real estate bust in 2006. Legal actions to seize a home typically start at three months. The rate is tracked by economists because it captures foreclosures delayed by bank backlogs.

A reduction in defaults doesn’t mean the housing crisis is coming to an end, said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. About 6.4 million home loans were either delinquent or in foreclosure in April, according to Lender Processing Services Inc., a Jacksonville, Florida-based mortgage-transaction and data firm.

“It’s going to take a crazy amount of time for the process to play out, because of the sheer volume,” Shapiro said in an interview. “We may see some of the numbers come down a bit, but foreclosures are going to stay very high for a prolonged period of time -- a year or two, or even more.”

Home Sales Drop

Sales of previously owned homes unexpectedly fell 0.8 percent to a 5.05 million annual pace in April, the National Association of Realtors said in a report today. Economists had expected a 5.2 million rate, based on the median of 75 estimates in a Bloomberg survey.

The median U.S. sales price dropped 5 percent from a year earlier to $163,700. About 37 percent of transactions were of foreclosed properties or short sales, when a lender agrees to accept less than the balance of the mortgage.

The share of mortgages overdue by one month or more rose in the first quarter to 8.32 percent from 8.25 percent, according to the MBA data. The increase was caused by a gain in 30-day delinquencies, to 3.35 percent from 3.26 percent, Brinkmann said.

Florida had the highest foreclosure rate in the first quarter, at 14 percent, followed by Nevada, at 9.3 percent, according to the report. New Jersey was next, at 7.7 percent.

New York’s foreclosure rate was 5.3 percent, Connecticut was 4.4 percent and the Massachusetts rate was 3.3 percent, according to the report.

The foreclosure rate for prime loans, traditionally the best-performing, declined to 3.52 percent from a record high of 3.67 percent in the prior quarter, according to the report.

Job Gains

Employment is the most important indicator for predicting the level of future foreclosures, said Brinkmann. A seven-month increase in jobs reported by the Labor Department signals foreclosure rates may continue to decline, he said.

“Unless people have a paycheck, they can’t make a mortgage payment,” Brinkmann said.

American employers have added 2 million jobs since payrolls reached a more than 10-year low in February 2010, according to the Bureau of Economic Analysis. In April, there were 131 million workers, a two-year high.

The jobless rate probably will average 8.7 percent this year and 8.1 percent in 2012, according to the median estimate of 68 economists in a Bloomberg survey. Last year, the rate was 9.6 percent, the highest since 1983, government data show.

To contact the reporter on this story: Kathleen M. Howley in Boston at

To contact the editor responsible for this story: Kara Wetzel at

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