U.S. Mortgage Foreclosures Rise as Owners 'Give Up'
By Kathleen M. Howley
March 6, 2008

March 6 (Bloomberg) -- U.S. mortgage foreclosures rose to an all-time high at the end of 2007 as borrowers with adjustable-rate loans walked away from properties before their payments increased, the Mortgage Bankers Association said today.

New foreclosures jumped to 0.83 percent of all home loans in the fourth quarter from 0.54 percent a year earlier. Late payments rose to a 23-year high, the organization said in a report today.

''We're seeing people give up even before they get to the reset because they couldn't afford the home in the first place,'' said Jay Brinkmann, vice president of research and economics for the Washington-based trade group.

The Bush administration is urging lenders to avert foreclosures by modifying mortgage terms amid the worst housing slump in a quarter century. The Federal Reserve has slashed its benchmark interest rate twice this year to try to avert the first recession since 2001. The central bank yesterday said the net worth of U.S. households decreased by $532.9 billion during the fourth quarter as home values fell.

The share of all home loans with payments more than 30 days late, both prime and fixed-rate loans, rose to a seasonally adjusted 5.82 percent, the highest since 1985, the bankers' group said in today's report.

Buyers 'Overstretched'

About 40 percent of all foreclosures are homeowners with prime or subprime loans who couldn't make their payments before the reset, Brinkmann estimated in an interview. Another 23 percent are borrowers who received some form of loan modification, typically a freezing or a reduction of their rate, and then default, he said

Forty-two percent of new foreclosures in the fourth quarter were people with adjustable-rate subprime mortgages, given to borrowers with limited or tainted credit records, according to the report. Those types of loans accounted for about 7 percent of all mortgages, the report said.

''It comes down to an overstretching of buyers to get into homes they couldn't afford and an overextending of credit by lenders who were more willing to take risk,'' Brinkmann said.

Another 20 percent of new foreclosures were prime adjustable-rate mortgages, which accounted for 15 percent of all home loans, according to the report.

Late Payments Data

Twenty percent of adjustable-rate subprime loans had late payments in the fourth quarter, a number that excludes the one of every eight mortgages already in foreclosure, the bankers group said in their report.

The share of late payments for adjustable prime loans was 5.51 percent, from 3.39 percent a year earlier, and the foreclosure inventory rose to 2.59 percent, almost tripling from a year earlier.

The Mortgage Bankers survey examines 46 million residential home loans, about 80 percent of the market. The study gives percentages without providing the number of loans they represent.

Homebuilding executives, economists and securities analysts predict the housing market won't begin to recover until at least 2009. U.S. sales of new and existing homes probably will fall to 5 million this year, a drop of 33 percent from the all-time high of 7.46 million in 2005, before rising to 5.23 million in 2009, Freddie Mac said in a March 3 forecast.

Freddie Mac and Fannie Mae, the biggest U.S. mortgage finance companies, have posted their largest-ever losses as rising defaults boosted credit costs. Fannie Mae had a $3.55 billion loss in the fourth quarter, the Washington-based company said Feb. 27. Freddie Mac reported $2.45 billion fourth-quarter loss the following day.

The Mortgage Bankers survey came on the same day that the National Association of Realtors reported that the number of Americans signing contracts to buy previously owned homes was unchanged in January.

The Realtors' index of signed purchase agreements held at 85.9, higher than forecast and the second-lowest level since the Chicago-based group began keeping records in 2001.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

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