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Metro foreclosures up 56 percent

Foreclosures hit 50-year high

Delinquency rate also up as more workers lose jobs

By Kathleen M. Howley, Bloomberg News
September 10, 2002

WASHINGTON - The U.S. foreclosure rate reached the highest level in almost half a century and mortgage delinquencies rose in the second quarter as more Americans lost their jobs, the Mortgage Bankers Association of America said.

The delinquency rate rose to 4.77 percent from 4.65 percent the previous quarter. The rate at which mortgages entered foreclosure stood at 0.40 percent, up from 0.37 percent, according to the trade group, which has tracked the rate since 1953.

More homeowners had trouble meeting mortgage payments with unemployment averaging 5.9 percent in the quarter, up from 4.5 percent a year earlier. Rising delinquencies and foreclosures may prompt lenders to make fewer loans, hurting housing, which has been credited with underpinning the economy.

"If data keeps coming in showing these unacceptably high foreclosure rates you're going to see a tightening of the credit purse strings, and that won't be good for consumers," said Barry Habib, head of sales training for GMAC Mortgage Corp., the eighth-largest lender.

"When it comes time to sell your home there'll be fewer people who have the ability to purchase it, and that affects how much you can charge for it."

Delinquencies, defined as mortgages with payments at least 30 days past due, are at their highest level since the third quarter of 2001, when the rate was 4.87 percent.

The rise in delinquencies and foreclosures is mainly the result of loans administered under the U.S. Department of Housing and Urban Development's Federal Housing Administration program.

These FHA loans are typically made to low-income borrowers, a group that is most susceptible to predatory lending, according to consumer groups.

Delinquencies on FHA loans rose to 11.8 percent in the second quarter from 11.2 percent the prior quarter, according to the Mortgage Bankers Association. The foreclosure rate for the loans ended the quarter at 2.79 percent, up from 2.32 percent.

By comparison, the delinquency rate on conventional mortgages stood at 3.10 percent, up from 3.04 percent, while foreclosures increased to 0.87 percent from 0.81 percent.

Delinquency rates and unemployment numbers tend to lag an economic recovery, meaning the figures may increase, said Doug Duncan, chief economist for the Washington-based trade group.

"We have emerged from the recession but only weakly," Duncan said. "We have yet to see a turnaround in unemployment, critical to the recovery of delinquencies."

Mortgage lending will likely reach $2.10 trillion this year, surpassing last year's record $2.03 trillion, said Phil Colling, an economist for the group.

Low mortgage rates have benefited the economy and have driven home prices higher by allowing buyers to qualify for bigger loans.

In the second quarter, U.S. home prices increased an average of 7.4 percent, according to the National Association of Realtors.

Rates for a 30-year fixed mortgage averaged 6.81 percent in the second quarter, compared with 7.13 percent a year earlier and 8.32 percent two years earlier, according to Freddie Mac, the second-largest buyer of U.S. mortgages.

 
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