Late mortgage payments in the United States shot up to a 3 1/2-year high in the final quarter of last year and new foreclosures surged to record levels as borrowers with tarnished credit histories had trouble keeping up with monthly payments.
The Mortgage Bankers Association, in its quarterly snapshot of the mortgage market released yesterday, reported the percentage of payments that were 30 or more days past due for all loans tracked jumped to 4.95 per cent in the October-to-December quarter.
That marked a sharp rise from the third-quarter's delinquency rate of 4.67 per cent and was the worst showing since the spring of 2003, when the late-payment rate climbed to 4.97 per cent.
The association's survey covers 43.5 million loans.
The latest snapshot of the mortgage market stoked Wall Street investors' worries about troubles facing "subprime" lenders who lend to people with poor credit. The Dow Jones industrials fell 242.66 points.
The percentage of mortgages that started the foreclosure process in the final quarter of last year rose to 0.54 per cent, a record high. The previous high, 0.50 per cent, occurred in the second quarter of 2002 as the economy was recovering from the blows of the 2001 recession.
Delinquency and foreclosure rates were considerably higher for higher-risk subprime borrowers, especially those with adjustable-rate mortgages.
Lenders to subprime borrowers – people with blemished credit histories – have been battered. Rising interest rates and weak home prices have made it increasingly difficult for these borrowers – especially those with adjustable-rate mortgages – to keep up with their payments. Delinquencies and foreclosures in the subprime mortgage market are spiking.
The late-payment rate for all subprime loans jumped to 13.33 per cent in the fourth quarter, up from 12.56 per cent in the prior period and the highest in four years. The delinquency rate for subprime borrowers with adjustable-rate mortgages was even higher – 14.44 per cent, also the highest in four years.
"Unfortunately, it appears delinquency rates will likely worsen before they improve," said Gina Martin, an economist at Wachovia Corp. Economics Group.
The rate of all subprime loans starting the foreclosure process at the end of last year was 2 per cent, the highest in three years. The percentage of subprime adjustable-rate mortgages entering foreclosure soared to 2.70 per cent, the second-highest on record.
Meanwhile, in Washington, the U.S. Congress is eyeing tougher standards for risky, higher-interest home loans as lenders to the so-called subprime market see their own financing dry up.
Major banks cut off credit this week to New Century Financial Corp., a prominent subprime mortgage lender that announced yesterday it is the target of a U.S. Securities and Exchange Commission investigation into accounting errors that inflated the value of the company's loan portfolio.
Also yesterday, shares of Accredited Home Lenders Holding Co. sank to a new low after the company said it needed help raising money as the value of its loans sinks.
Two weeks ago, mortgage giant Freddie Mac said it would no longer buy loans for which borrowers qualify based on teaser rates that are held low for two or three years – a common practice in the subprime market.
Instead, it will require lenders to consider whether a borrower can make their payment when the teaser period is over.
The House subcommittee that oversees financial institutions is scheduled to hold a hearing later this month on the mortgage industry's turmoil.
Earlier this month, the five federal agencies that regulate banks, thrifts and credit unions called on lenders to exercise caution in making subprime loans and to closely evaluate borrowers' ability to repay them.
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