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Home Loan Delinquencies Break Records Again

A record one in 10 American homeowners with a mortgage was either at least a month behind on their payments or in foreclosure at the end of September. The percentage of loans at least a month overdue or in foreclosure was up from 9.2% in the April-June quarter, and up from 7.3% a year earlier, the Mortgage Bankers Association (MBA) said Friday.

The source of the continued housing market woes shifted from risky subprime loans to the continued economic downturn. President Bush recently said that the U.S. has been in a recession since December, 2007, something that most Americans already knew.

The foreclosure crisis continues to be concentrated in states like Florida, where 7.3% of all loans were in foreclosure at the end of September, in Nevada, where the number was 5.6% and California, which has 3.9%. The national average is about 3%.

Although the housing crisis has been going on for about 2 years, the latest wave of delinquencies is as a result of the surge in unemployment. Employers slashed 533,000 jobs in November, the most in 34 years, catapulting the unemployment rate to 6.7%, the Labor Department said Friday. "Now it's a case of job losses hitting more across the board," Jay Brinkmann, the trade group's chief economist.

The surge in unemployment will probably push the housing market bottom further into the future. Since the start of the recession, the economy has lost 1.9 million jobs. These job losses are already having an impact in rising delinquency rates for traditional 30-year fixed rate loans made to borrowers with strong credit (prime loans). Total delinquencies on those loans rose to 3.35% in September from 3.07% at the end of June, the Mortgage Bankers Association said.

Lenders appear to be on track to initiate 2.25 million foreclosures this year, up from an average annual pace of less than 1 million during the pre-crisis period, Federal Reserve Chairman Ben Bernanke said this week. In the third quarter, there were about 575,000 new foreclosures, with about 183,000 in California and Florida combined, according to the MBA's data.

But, it seems that the rate of foreclosures is slowing. The number of loans that entered the foreclosure process totaled 1.07% of all loans in the third quarter, flat from the second quarter. This may be as a result of changes in state laws that delay or extend the foreclosure process and efforts to work out or modify loans that could still fall back into foreclosure. But, the total delinquency rate on subprime adjustable-rate loans remained just over 21%, down from a peak of 22% in the first quarter. So there is a small glimmer of hope in an otherwise dismal housing market.

As a result of the continued rising tide of delinquencies on many types of loans, more efforts to stabilize the housing market continue to accelerate. The Treasury Department is now considering a plan to make loans at 4.5% as a way to revive the U.S. housing market. However, the plan being considered would apply only to new home purchases, not refinanced loans. According to some analysts, this plan could also delay a necessary deflation of the housing bubble. With the government effectively lowering mortgage rates, housing prices could be prevented from falling to a more affordable level.

Any government assistance plan should exclude homes that are out of line with rents or other measurements of affordability, said Dean Baker, an economist and co-director of the Center for Economic Policy Research in Washington. "It's absolutely counterproductive to try and prop up prices," he said.

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