Troubled mortgages at record level in state

By: Thomas Content of the Journal Sentinel

Date: Nov. 19, 2009

Source: Milwaukee Journal Sentinel 20 November 09

Link: http://www.jsonline.com/business/70478967.html

Some fear foreclosure pace could accelerate

One of every nine homeowners in Wisconsin was behind on mortgage payments or in foreclosure at the end of September – a record level that industry observers said Thursday is likely to rise. The state continues to fare better than the nation, however, as delinquencies or foreclosures now account for one of every seven loans across the country, the Mortgage Bankers Association said in its quarterly report. The report found more than 11% of Wisconsin loans and more than 14% of national loans were either in foreclosure or delinquent at the end of the quarter, with both rates up sharply from the same time last year. It was a record-high figure for the ninth straight quarter. The data suggest the housing market and the broader recovery will remain under pressure from the surge in home-loan defaults, especially as unemployment keeps rising. Lost jobs are the main reason homeowners are falling behind on their mortgages.

After three years of plunging prices, the housing market started to rebound this summer. That lifted hopes for the overall economy. But analysts say there are too many foreclosed homes that have yet to be dumped on the market, and they expect further price declines. The outlook is grim, as job losses and adjustable-rate mortgages resetting at higher rates pack a one-two punch for homeowners getting behind on mortgage payments. “The outlook is that delinquency rates and foreclosure rates will continue to worsen before they improve,” said Jay Brinkmann, chief economist at the Mortgage Bankers Association. “First, it is unlikely the employment picture will get better until sometime next year, and even then jobs will increase at a very slow pace. “Perhaps more importantly, there is no reason to expect that, when the economy begins to add more jobs, those jobs will be in areas with the biggest excess housing inventory and the highest delinquency rates.”

Foreclosure rates are rising in Wisconsin, which ranks 17th in the nation in foreclosures started during the third quarter. By contrast, Wisconsin ranked 36th in the nation in delinquencies. “What happened is Wisconsin was lagging the nation as a whole, and now it’s starting to pick up and really accelerate,” said bankruptcy and foreclosure lawyer David Liebowitz of Lakelaw in Kenosha.

Subprime loans a concern

An increase in foreclosures had been forecast earlier this year by Milwaukee Mayor Tom Barrett, even after the county posted a 77% jump in foreclosures in 2008 compared with 2007. A sizable number of mortgages with adjustable rates are resetting in 2010, which could mean the trends will persist. Catey Doyle, chief staff attorney with the Legal Aid Society in Milwaukee, said statewide foreclosures could hit 30,000 this year, up from 24,500 last year. Of particular concern in Wisconsin are subprime loans, higher-interest mortgages sold to people with shakier credit histories. The MBA analysis found that 27.4% of Wisconsin subprime loans were delinquent, slightly higher than the national rate of 26.7%. Wisconsin ranked 10th in the nation in the percentage of home loans that have gone to foreclosure.

Doyle said she’s surprised to see how many subprime loans have been made in recent years across the state – and not just in Milwaukee. She said she analyzed several days of foreclosures across the state and was surprised to see that three of four problem loans across the state involved subprime loans. “We’re seeing a lot of bad mortgages that have adjustable-rate mortgages that have just hit the point where homeowners finally are not able to make the payments,” she said. “We’re also seeing an increase in people who have had a period of unemployment. They’re either unemployed now, or were for a time, and may be re-employed but at a much lower income level.”

The delinquency rate in Wisconsin for loans on residential properties stood at 7.66% at the end of the third quarter, up from 6.86% three months earlier, according to data released Thursday by the Mortgage Bankers Association. It’s up from 5.59% this time last year.

Crisis worse elsewhere

But Wisconsin continues to fare better than the nation as a whole and most nearby states in keeping current on house payments. Nationally, the delinquency rate on residential properties was 9.94%, up from 8.86% in the second quarter. Wisconsin has been consistent in not seeing the serious effects of the foreclosure crisis, which has hit hardest in Florida, California, Arizona and Nevada. Those states “have a disproportionate share of the mortgage problems,” accounting for 43% of all foreclosures started in the third quarter, the MBA’s Brinkmann said.

The delinquency rate excludes loans in the process of foreclosure. The percentage of loans in Wisconsin on which foreclosure was started during the quarter rose 3 basis points to 1.06%, while the percentage of loans in the foreclosure process at the end of the quarter increased 8 basis points to 3.65%. The rates were not seasonally adjusted. Mortgage delinquency rates normally rise between the second and third quarter of the year because of a variety of seasonal factors, according to the association. “There are options out there to help them, but at times what we see is that people don’t contact us until it’s too late, and sometimes they don’t return our repeated phone calls to let them know they’re late on their mortgage and we want to talk to them,” said Kurt Bauer, chief executive of the Wisconsin Bankers Association. “They may be embarrassed and don’t think that there are any options available.”