The weak economy has pushed home loan foreclosures nationwide to a record level, but there are signs the worst is over for people struggling with mortgage payments.
The Mortgage Bankers Association of America said Tuesday that the percentage of loans in foreclosure rose to 1.15 in the third quarter of last year, up from 1.13 in the second quarter and the highest level since the trade group began tracking them in 1979. The previous high of 1.14 was set in 1998 and matched two other times.
“There’s some good news in this survey,” said Doug Duncan, chief economist for the association. “We believe that delinquencies have peaked.”
Delinquencies, defined as loan payments more than 30 days past due but not in foreclosure, declined to 4.66 percent from 4.77 percent in the second quarter. Delinquencies typically indicate future trends in foreclosures.
“In today’s climate of low interest rates, it is easier to refinance and adjust monthly mortgage payments downward so they are less of a burden,” said Erik Hurst, assistant professor of economics at the University of Chicago. “If the delinquency rate declines, that’s good, because it suggests that the foreclosure rate will fall in the future.”
In Illinois, the percentage of loans in foreclosure fell to 1.53 percent from 1.55 percent in the second quarter. Loan delinquencies in Illinois, which unlike the national figures are not seasonally adjusted, rose to 4.99 percent from 4.86 percent in the second quarter.
The rise in foreclosures has made for an unhappily booming business for credit counselors.
The Association of Community Organizations for Reform Now offers mortgage counseling in 30 major cities.The program used to focus on helping first-time buyers get a good deal when purchasing a home.
“Our business has shifted dramatically in the last two years, especially the last year, from helping people become first-time home buyers to helping people with mortgage problems,” said Michael Shea, executive director of the organization’s housing program.
In the past, people struggling to pay their home loans accounted for about 15 percent of the work done by ACORN counselors, Shea said. Now it is 50 percent, and Chicago-area counselors are fielding dozens of calls a month.
Shea said several factors have pushed up the number of foreclosures. The number of people whose work hours have been cut back, or who have lost their jobs, has risen. At the same time, subprime lenders charging as much as 12 percent for a mortgage have made loans more expensive for some borrowers.
Robert Dederick, economic consultant for the Northern Trust Co., said higher delinquencies and foreclosures were expected developments because lending institutions have lowered the standards for obtaining mortgages.
“Nothing is wrong with that,” Dederick said. “It has allowed more people to participate in homeownership. But it has resulted in some people with weaker balance sheets not being able to pay their mortgages.
“Higher delinquencies may not fade away even after the recession is over. The economy doesn’t immediately go back to prosperity.”
Diane Swonk, chief economist for Bank One Corp., said today’s lower down payments may affect those who default.
“If people have less invested in the home and less to lose, they may be more inclined to foreclosure,” she said.
Lynn Reaser, chief economist for Banc of America Capital Management in St. Louis, said the biggest risk for increased foreclosures and delinquencies would be a sharp rise in the unemployment rate.
“But the significant fiscal stimulus announced by the president should help the economy regain its footing this year,” Reaser said.
Tom Johnson, director of default services for Wells Fargo Home Mortgages, which is headquartered in Des Moines and has offices in the Chicago area, said the numbers he has seen for delinquencies and foreclosures in the fourth quarter were down. Johnson cited job loss as the main reason people lose their homes.
“That can be devastating,” he said. “Savings can be blown away quickly. Large medical bills also can make a family susceptible to mortgage delinquency or foreclosure.”
Ed Cooper, district manager of GMAC Mortgage Corp. in Orland Park, said foreclosures aren’t limited to first-time buyers or people with spotty credit.
“A wide spectrum of home buyers are affected by problems in paying their mortgage,” Cooper said. “Professionals and mid-managers have been hit recently. It’s not just Joe Six-Pack first-time buyer.”
As for the future, he said: “Right now everyone is holding their breath. If there is a war, that could drive interest rates up.”
