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Foreclosures Up Subprime Mortgages
By JEANNINE AVERSA
AP Economics Writer
WASHINGTON (AP) -- Late payments and new foreclosures
on adjustable-rate home mortgages made to people with
spotty credit climbed to all-time highs in the first
three months of the year.
The Mortgage Bankers Association, in its latest snapshot
of the mortgage market, reported Thursday that the percentage
of payments that were 30 or more days past due for "subprime" adjustable-rate
home mortgages jumped to 15.75 percent in the January-to-March
quarter.
That was a sizable increase from the late 2006 delinquency
rate of 14.44 percent and was the highest on record,
the association's chief economist Doug Duncan said in
an interview with The Associated Press.
People who have taken out subprime mortgages, especially
adjustable-rate loans, have been clobbered. Rising interest
rates and weak home prices have made it increasingly
difficult for people to keep up with their monthly payments.
Lenders in the subprime market have been hard hit; some
have been forced out of business.
The percentage of subprime adjustable-rate mortgages
that started the foreclosure process in the first quarter
of this year climbed to 3.23 percent. That compared with
2.7 percent in the final quarter of 2006 and was the
highest on record, Duncan said.
The first-quarter's increase in new foreclosures was
mostly driven by problems in California, Florida, Nevada
and Arizona, he said.
In those four states, foreclosures are being "heavily
influenced by speculators who are walking away from properties
now that home prices have started to fall in areas of
those states and they face resets in the adjustable-rate
mortgages they took out for these homes," Duncan
said.
Federal Reserve Chairman Ben Bernanke, in a speech last
week, predicted there will be further increases in delinquencies
and foreclosures as interest rates on many subprime adjustable-rate
loans will go up as they reset.
Analysts estimate that nearly 2 million adjustable-rate
mortgages will reset to higher rates this year and next.
Some subprime borrowers were lured by an initially low "teaser" rates
offered during the 5-year housing boom that ended in
2005. But those teaser rates can spike upward after the
first few years, causing payment shocks.
Still, Bernanke said it was unlikely that troubles in
the subprime mortgage market would seriously spill over
to the broader economy or the financial system.
Loose lending standards, including allowing borrowers
to get mortgages with little documentation, contributed
to problems in the subprime market, Bernanke said. Congress
is looking into possible action. Bernanke, meanwhile,
has said the Fed will consider tougher rules to curb
abusive practices and improve disclosure.
"In doing so, however, we must walk a fine line," said
Fed Governor Randall Kroszner, who presided over a public
hearing Thursday on the matter. "We must determine
how we can help to weed out abuses while also preserving
incentives for responsible lenders," he said.
For all mortgages, the delinquency rate actually dipped
to 4.84 percent in the first quarter, an improvement
from the fourth quarter's rate of 4.95 percent, which
had marked a 3 1/2 year high.
The number of all mortgages starting the foreclosure
process in the first quarter rose to a record high of
0.58 percent. That surpassed the previous high of 0.54
percent in the final quarter of 2006.
The association's survey covers a total of nearly 44
million loans nationwide.
Sen. Charles Schumer, D-N.Y., said the survey shows
the need for his legislation that would help homeowners
avoid foreclosures by boosting funds to community groups
that provide financial counseling. "It is not too
late to act to help families before they lose their homes," he
said. "Left alone, a wave of new foreclosures threatens
entire communities across the country."
Wall Street was jarred when the association's previous
report in March showed surging delinquencies and new
foreclosures in the final quarter of last year. The Dow
Jones industrials tumbled that day nearly 243 points.
The subprime meltdown began in February, when New Century
Financial Corp. and HSBC Holdings reported more borrowers
missing payments. The spike in bad loans scared banks
and investors away from risky debt, drying up much of
the industry's financing. More than 30 subprime lenders,
including New Century, have gone bankrupt this year.
With the hope that subprime problems eventually will
be worked through and won't infect the overall mortgage
market, Duncan said: "We're just urging people to
take a deep breath and look at the big picture."
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