More than one in every eight US homeowners with a mortgage was behind on home loan payments or in a foreclosure process at the end of the second quarter - - Q2 2009. The rise has been tracking growing unemployment, the Mortgage Bankers Association (MBA) said on Thursday.

The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.24 per cent of all loans outstanding as of the end of the second quarter of 2009, up 12 basis points from the first quarter of 2009, and up 283 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 64 basis points from 8.22 per cent in the first quarter of 2009 to 8.86 per cent this quarter.

The MBA data dates back to 1972, and the industry body said the delinquency rate breaks the record set last quarter. 

The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure.  The percentage of loans in the foreclosure process at the end of the second quarter was 4.30 per cent, an increase of 45 basis points from the first quarter of 2009 and 155 basis points from one year ago. The combined percentage of loans in foreclosure and at least one payment past due was 13.16 per cent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.

The percentage of loans on which foreclosure actions were started during the second quarter was 1.36 per cent, down one basis point from last quarter and up 28 basis points from one year ago.

The percentages of loans 90 days or more past due and loans in foreclosure both set new record highs, breaking records set last quarter.  The percentage of loans 30 days past due is still well below the record set in the second quarter of 1985. 

Increases driven by prime fixed-rate loans

“While the rate of new foreclosures started was essentially unchanged from last quarter’s record high, there was a major drop in foreclosures on subprime ARM loans.  The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase. As a sign that mortgage performance is once again being driven by unemployment, prime fixed-rate loans now account for one in three foreclosure starts.  A year ago they accounted for one in five.  While 41 states had increases in the foreclosure start rate for prime fixed-rate loans, 43 states had decreases in that rate for subprime adjustable-rate loans,”said Jay Brinkmann, MBA’s chief economist.

“The states of California, Florida, Arizona and Nevada continue to have a disproportionately high share of foreclosure starts, although the share has fallen slightly from last quarter.  Those four states had 44 per cent of all of the nation’s new foreclosures during the second quarter of this year, down from 46 per cent in the first quarter.

“Florida continues to establish itself as the worst state in the union for mortgage performance, closely followed only by Nevada.  In Florida 12 per cent of mortgages were somewhere in the process of foreclosure, the highest in the nation, and another 5 per cent were at least 90 days past due as of the end of June.  A total of 22.8 per cent were delinquent at least one payment or in the process of foreclosure, which is almost twice the national percentage if the Florida numbers are excluded.  In contrast, the next highest states are Nevada at 21.3 per cent, Arizona at 16.3 per cent and Michigan at 15.8 per cent.

“We also saw a major jump in FHA (Federal Housing Agency) foreclosures.  The percentage of loans with foreclosures started, the percentage of loans in foreclosure and the percentage of loans 90 days or more past due are all records for FHA.  While the foreclosure starts rate for FHA loans at 1.15 per cent is lower than all other loan types with the exception of prime fixed-rate loans, the FHA percentages have remained low due to a large increase in the number of loans outstanding, the so-called “denominator effect”.  If the number of FHA loans had stayed the same as a year ago and we saw the same number of foreclosures, the FHA foreclosure rate would be almost 1.5 per cent.

“As for the outlook, it is unlikely we will see meaningful reductions in the foreclosure and delinquency rates until the employment situation improves.  In addition, in some areas where a number of borrowers have mortgages that are larger than the current value of their homes, any life events such a divorce or loss of a job are likely to translate into foreclosures until prices in those areas recover, not just flatten.

“Finally, while the various loan modification programs continue to have an impact on holding foreclosure rates below where they otherwise would be, the issue is that many of the foreclosures involve homes that are vacant, borrowers who no longer have jobs, or loans where there was fraud involved.  Therefore, in measuring the effectiveness of industry or government loan modification programs it is necessary to compare the results not with the total foreclosure and delinquency numbers reported here but with the smaller subset of borrowers who can and want to qualify,” Brinkmann said.

The Wall Street Journal's Real Economics Blog says new claims for unemployment benefits hit a peak at the beginning of April, with the four-week moving average standing at 659,000. Robert J. Gordon, an economics professor at Northwestern University who sits on the National Bureau of Economic Research committee tasked with dating recessions, has noted the value in this series. Going back to the late 1960s, he has found that the four-week average of new claims peaks about a month before the declared end of recessions with remarkable accuracy.

The blog says that would indicate that the recession ended in May. That date is looking increasingly unlikely. Though the majority of economists in the latest Wall Street Journal forecasting survey said the recession has ended, most put the date later. Monthly GDP and forecasters seem to lean to a recession end date in June at the earliest.

The labour market continues to be seen as a thorn in the side for anyone looking for recovery. Though jobless claims may have peaked, they remain at an elevated level. Claims are down about 13% from their peak. That’s a smaller decline than any other recession since the 1960s with the exception of the downturn in 1975, when claims were just 11% lower 19 weeks after the peak. By this point in the cycle claims had tumbled more than 25% in the downturns of the 1980s.