By Lynn Adler
NEW YORK (Reuters) - Late mortgage payments and the rate of home loans in foreclosure rose to record highs in the third quarter, threatening to escalate as the recession erases jobs and further strains homeowners, the Mortgage Bankers Association said on Friday.
The number of loans entering the foreclosure process would have been even higher without various programs halting them in favor of loan modifications.
A spiking unemployment rate in the midst of what many economists fear to be a deep recession, however, points to rising mortgage delinquency and foreclosure rates next year, the trade group said.
"We haven't gone into past recessions with a housing market in as bad of a shape," Jay Brinkmann, chief economist and senior vice president for research and economics, told Reuters in an interview.
The Mortgage Bankers Association estimates 2.2 million home mortgages will start the foreclosure process this year, before sweeping national efforts to stem the tide take effect.
"The bigger issue is going to be the underlying economy," Brinkmann said. "As much as any of the overbuilding issues, poor lending or speculative issues, as these job losses spread to some of the rest of the economy ... That certainly doesn't speak to a foreclosure rate coming down."
The share of loans in the foreclosure process rose to a record 2.97 percent from 2.75 percent the prior quarter and 1.69 percent a year earlier, the trade group said.
U.S. employers cut 533,000 jobs in November, the weakest monthly performance in 34 years, according to the Labor Department on Friday. Unemployment rose to a 15-year high of 6.7 percent.
The rate of one-to-four-unit residential loans at least one payment past due rose to a seasonally adjusted 6.99 percent in the third quarter, up from 6.41 percent in the second quarter and 5.59 percent a year ago.
Loans that were 90 days or more past due. but not in foreclosure, raced to a record in the quarter. This indicated that more companies were holding onto troubled mortgages longer in effort to alter terms and avert foreclosure.
While 20 states showed declines in the rate of foreclosure starts between the second and third quarters, every state but Alaska had an increase in the 90 days or more delinquent category, the MBA said in a release.
But the share of loans entering the foreclosure process was flat overall in the third quarter, with rates differing greatly depending on loan type and location.
Nine states had foreclosure start rates above the national average: Nevada, Florida, Arizona and California, Michigan, Rhode Island, Illinois, Indiana and Ohio. The others were below the average.
"Prime and subprime adjustable-rate mortgages continue to have the highest share of foreclosures and California and Florida have about 54 percent and 41 percent of the prime and subprime ARM foreclosure starts respectively," Brinkmann said in the release. "Until those two markets turn around, they will continue to drive the national numbers."
(Editing by James Dalgleish)
