Record Rate of New Foreclosures

Record rate of new foreclosures
Mortgage bankers say meltdown causes highest level of homeowners late in payments since 1986.
December 6 2007: 10:24 AM EST
NEW YORK (CNNMoney.com) -- The rate of home owners going into foreclosure hit a record high in the third quarter, while those late with their payments were at the highest level since 1986 - the latest signs of the meltdown in the mortgage and real estate markets shaking the U.S. economy.
The Mortgage Bankers Association reported that 0.78 percent of mortgages entered the foreclosure process in the three months ended Sept. 30, up from the 0.65 percent foreclosure rate in the second quarter that had been the previous record high, and more than double the 0.32 percent rate seen a year earlier.
The report also showed that 5.59 percent of borrowers are now at least 30 days late making their mortgage payment.
Mortgage deliquencies and foreclosures became a serious problem during the quarter, as investor demand dried up for securities backed by mortgages, particularly subprime loans made to borrowers without top credit scores.
That meltdown in the mortgage market made many major lenders pull back from making subprime mortgage loans, which in turn helped send home sales, prices and new construction sharply lower, raising the risk of a recession. Countrywide Financial (Charts, Fortune 500), the nation's largest mortgage lender, was one of the banks to pull back from making subprime loans.
Many of those subprime loans had low introductory teaser rates which reset to payments that the homeowner can no longer afford.
President Bush is due to unveil a proposal Thursday that would freeze rates for some of those at-risk homeowners, and some lenders.
In addition to the effect on home owners and mortgage lenders, many of the top firms on Wall Street, including No. 1 bank Citigroup (Charts, Fortune 500), No. 1 brokerage firm and Merrill Lynch (Charts, Fortune 500), have been hit by the mortgage meltdown. Both took billions in writedowns from subprime losses as their chief executives were forced to resign.
The two government-sponsored mortgage finance firms, Fannie Mae (Charts) and Freddie Mac (Charts, Fortune 500), have also both been hit with losses from problems in the mortgage market that have left them scrambling to raise cash.
And home builders have been badly hurt by the problems, with No. 1 builder Lennar (Charts, Fortune 500) announcing late last week it was selling 11,000 properties for only 40 percent of their previously-stated value. On Thursday, leading luxury home builder Toll Brothers (Charts, Fortune 500) reported its first loss as a public company. Find mortgage rates in your area.



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