Are We There Yet…….FHA, Prime Mortgage Defaults at Records on Job Losses

Posted By on November 19, 2009

FHA, Prime Mortgage Defaults at Records on Job Losses

By Kathleen M. Howley

Nov. 19 (Bloomberg) — Foreclosures on prime mortgages and home loans insured by the Federal Housing Administration rose to three-decade highs in the third quarter, driven by the biggest job losses since the Great Depression.

One out of every six FHA mortgages was late by at least one payment and 3.32 percent were in foreclosure, the highest for both since at least 1979, the Mortgage Bankers Association said today. The delinquency rate for prime fixed-rate mortgages, considered home loans with the least risk, rose to 5.8 percent and the foreclosure inventory rose to 1.95 percent, the highest since at least 1972.

Homeowners are falling behind on their mortgages as the U.S. has lost more than 7 million jobs since December 2007, driving the unemployment rate to 10.2 percent in October, the highest since 1983. Declining home prices in most markets also are preventing many owners from selling their properties, said Jay Brinkmann, the Washington-based trade group’s chief economist.

“If you don’t have a job, you can’t pay a mortgage,” Brinkmann said in an interview. “You don’t pay a mortgage with economic output, you pay a mortgage with a paycheck.”

The share of all types of mortgages with one or more payments overdue climbed to a record seasonally adjusted 9.64 percent in the third quarter. The foreclosure inventory increased to 4.47 percent from 4.3 percent. Both were the highest in 37 years of data.

The percentage of loans on which foreclosure actions were started was a record 1.42 percent. New foreclosures on prime fixed-rate loans increased to 0.71 percent from 0.67 percent, while FHA foreclosure starts rose to 1.31 percent from 1.15 percent.

Subprime adjustable-rate foreclosures starts dropped to 4.92 percent from 5.52 percent and the total foreclosure inventory for the types of loans that sparked the global financial crisis rose to 24.7 percent from 24.4 percent, Brinkmann said.

Defaults on FHA mortgages, which require down payments as small as 3.5 percent, may create another lending crisis, Toll Brothers Inc. Chief Executive Officer Robert Toll said yesterday.

“It’s a definite train wreck and the flag will go up in the next couple of months: Bail us out. Give us more money,” said Toll, the head of the largest U.S. builder of luxury homes.

The FHA’s insurance reserve ratio fell to 0.53 percent, the lowest level in history, and more steps are needed to shore up the agency that guarantees one of every five single family loans, Housing and Urban Development Secretary Shaun Donovan said Nov. 12.

While the insurance fund’s capital ratio is at an all-time low, Donovan said those who say FHA is the next subprime- mortgage crisis are “dead wrong.” The quality of the loans FHA insures is “actually very good,” Donovan said.

A report yesterday showing an unexpected drop in housing starts highlighted how the property market remains reliant on government support to sustain a recovery. Homebuilding seized up as builders waited for President Barack Obama to extend an $8,000 housing tax credit for first-time buyers, which has since been passed and expanded.

Builders broke ground on 529,000 homes at an annual pace in October, down 11 percent from the previous month and the fewest since April’s all-time low, the Commerce Department said yesterday.

The U.S. economy returned to growth in the third quarter after a yearlong contraction, the Commerce Department said in an Oct. 29 report. The world’s largest economy expanded at a 3.5 percent pace from July through September. Household purchases climbed 3.4 percent, the most in two years.

In the second quarter, U.S. banks held $34 billion of properties acquired through foreclosure, including repossessed homes and condominium projects gone bust, according to the Federal Deposit Insurance Corp. in Washington. That’s almost double the amount from a year earlier.

Employment losses prevented many homeowners from refinancing during the quarter to make payments more affordable, Brinkmann said.

U.S. mortgage rates tumbled more than a quarter of a percentage point during the third quarter, to an average of 5.04 percent from 5.32 percent at the beginning of July, according to Freddie Mac in McLean, Virginia.

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