According to the MBA's quarterly National Delinquency Survey, 1.37% of mortgages entered the foreclosure process in the first quarter, up from 1.08% in the fourth quarter.
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Total foreclosure inventory was also up, with 3.85% of all mortgages somewhere in the foreclosure process at the end of the first quarter, compared with 3.3% in the fourth quarter -- also a record jump. The delinquency rate, which includes loans that are at least one payment past due but not those in foreclosure, was a seasonally adjusted 9.12%, up from 7.88% in the fourth quarter.
The Washington-based MBA survey covers 45 million mortgages, representing between 80% and 85% of all first-lien residential mortgages outstanding in the United States.
"The increase in the foreclosure number is sobering but not unexpected. The rate of foreclosure starts remained essentially flat for the last three quarters of 2008 and we suspected that the numbers were artificially low due to various state and local moratoria, the Fannie Mae and Freddie Mac halt on foreclosures, and various company-level moratoria," said Jay Brinkmann, MBA's chief economist.
"Now that the guidelines of the administration's loan modification programs are known, combined with the large number of vacant homes with past due mortgages, the pace of foreclosures has stepped up considerably," he added, in a news release.
Until the country's employment situation improves, it's not likely that the level of mortgage defaults will begin to fall, Brinkmann added.
"MBA's forecast, a view now shared by the Federal Reserve and others, is that the unemployment rate will not hit its peak until mid-2010. Since changes in mortgage performance lag changes in the level of employment, it is unlikely we will see much of an improvement until after that," he said.
If the peak of unemployment doesn't hit until the middle of next year, it won't be until the end of 2010 or early 2011 that the foreclosure picture could improve, Brinkmann said in a telephone interview. But that timing also hinges on the local pictures in states including California and Florida, which have had an "oversized role" in the increase in foreclosures; the sooner things improve in some of the worst states, the sooner the national numbers could also start to look better. "If you work through the foreclosure numbers there... you may still see the national numbers come down," he said.
Some things change, some stay the same
While subprime, option ARM and Alt-A loans were a focus of the foreclosure problem initially, the foreclosure rate on prime fixed-rate loans has doubled in the last year.
"For the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures," Brinkmann said in the release -- evidence, he added, of the impact that the recession and drops in employment are having on the foreclosure numbers.
In some respects, these prime-loan defaults are the most difficult for lenders to address because they often indicate the loss of a job, he said. Even with a mortgage modification or refinance, borrowers might not have sufficient funds to pay their bills.
Still, in some ways the foreclosure story is the same.
"It was actually surprising to me how same the story was," Brinkmann said in the telephone interview. Just as they have in previous quarters, California, Florida, Arizona and Nevada are driving up national numbers, accounting for 46% of the foreclosure starts in the country in the first quarter.
Foreclosure actions were started on 3.4% of mortgages in Nevada, 2.8% of the mortgages in Florida, 2.5% of the mortgages in Arizona and 2.2% of the loans in California. By comparison, foreclosure actions were started on 1.5% of mortgages in Michigan and Illinois, and 1.3% of mortgages in Indiana and Ohio.
At the end of the first quarter, 10.6% of mortgages in Florida were somewhere in the foreclosure process, followed by 7.8% of mortgages in Nevada, 5.6% of mortgages in Arizona and 5.2% of mortgages in California, according to MBA statistics.
The effect of government help
It's difficult to determine how much of an effect the Obama administration's current plan to reduce foreclosures could have on the numbers, Brinkmann said. The Making Home Affordable program was announced during the first quarter.
"Just because the numbers go up, it isn't that the plan is not working," he said. Foreclosures may have been higher without the plan, he added.
That said, there are properties out there that don't qualify for the plan, he said, referring to mortgages that are drastically underwater, meaning that the mortgage is much higher than the home is currently worth.
"Prices have fallen, people are stepping in and buying homes at current prices. But there is no indication that it's setting much of a floor under prices," he said. "As long as prices stay at these levels, a number of people stay underwater."
Those who are underwater, in particular, are vulnerable to foreclosure when faced with events such as a job loss or divorce, he said
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