June 6, 2008 in City

Home foreclosures reach highest rate on record

Jeannine Aversa Associated Press
 
Associated Press photo

An auction sign is posted Thursday at a house under foreclosure in East Palo Alto, Calif. Associated Press
(Full-size photo)

WASHINGTON – The foreclosure hammer is hitting ever harder. People lost their homes at the highest rate on record in the first three months of the year, and late payments soared to a new high, too – an alarming sign that the housing crisis and its damage to the national economy may only get worse.

Dumping more empty homes on an already glutted market also is likely to put a further drag on home prices – extending a vicious cycle.

Slumping home values are being blamed in large part for the rising tide of foreclosures. Troubled borrowers are left owing more to the bank than their homes are worth. They can’t sell without taking a huge financial hit, so they just walk away.

In fact, Americans’ equity in their homes – usually their single biggest asset – now has dropped to the lowest level on record in figures going back to the end of World War II. Homeowners’ portion of equity fell to 46.2 percent, which means the amount of debt tied up in their homes exceeds the equity they have built up.

Watching their home values sink, consumers have pulled back on spending, a factor in the economy’s slowdown. Buoyed by rebate checks, shoppers did get back in the buying groove in May, but analysts predict that consumers – pounded by galloping gasoline prices – will still be cautious.

“The economy is treading water, and the housing market is one of the undercurrents trying to pull it down,” said Stuart Hoffman, chief economist at PNC Financial Services Group.

Nearly 1 percent, or roughly 447,723 loans, fell into foreclosure during the January-to-March period, the Mortgage Bankers Association said Thursday in its quarterly snapshot of the mortgage market. That surpassed the previous high of 0.83 percent over the last three months in 2007.

The report also found that more homeowners slipped behind on their monthly payments. The delinquency rate jumped to 6.35 percent – or 2.87 million loans – compared with 5.82 percent for the previous three months. Payments are considered delinquent if they are 30 or more days past due.

Both the rate of new foreclosures and late payments were the highest on record going back to 1979.

Homeowners with tarnished credit who have subprime adjustable-rate loans took the hardest hits. Foreclosures and late payments for these borrowers also swelled to all-time highs in the first quarter.

The percentage of subprime adjustable-rate mortgages that started the foreclosure process climbed to 6.35 percent. The rate was 5.29 percent in the fourth quarter, the previous high. Late payments rose to 22.07 percent from 20.02 percent, the previous high.

The association’s survey covers just more than 45 million home loans.

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