From Bad to Worse: One in 10 Mortgages in Trouble

Nearly one in 10 Americans with mortgages is behind on payments or has fallen into foreclosure, according to the Mortgage Bankers Association.

But the worst may be yet to come: Job losses, the trade group predicts, will exacerbate the situation.

"It is clear that the mortgage market now is being driven by fundamental issues with jobs and the economy," said Jay Brinkmann, the association's chief economist.

The delinquency rate for mortgage loans was 6.99 percent of all loans outstanding at the end of the third quarter of 2008, while the percentage of loans in foreclosure, 2.97 percent, hit a new record in the period from July to September, according to a report released by the association today.

The rate of homes entering into foreclosure during these three months was above the national average in the usual suspect states -- Nevada, Florida, Arizona, California, Michigan, Rhode Island, Illinois, Indiana and Ohio. Nationwide, however, the rate of homes entering foreclosure fell compared to the previous three months -- from 1.19 percent of all mortgages to 1.07 percent -- even as the number of homeowners more than 90 days late paying their mortgages increased.

The declines may be attributed to programs by state governments -- including those of Massachusetts, Maryland, New Jersey and Connecticut -- and lenders to place moratoria on foreclosures in order to see if loan workouts or modifications are possible for homeowners in trouble.

But in a troubling sign, as the economy continues to weaken and more people lose their jobs -- more than 533,000 jobs were cut last month, according to a government report released today -- even greater numbers of homeowners may be late in making their payments and more homes may fall into foreclosure.

"I think what we are going to see is a growing delinquency problem among prime mortgages, among mortgages where it's driven by some of these job loss factors," Brinkman said.

The country's initial rise in foreclosures was due largely to bad loans -- subprime loans and loans with rates that adjusted too high and too fast -- or loans with bad underwriting standards, such as those that didn't require proof of job or income.

"We are going back to the old fashioned way of losing your home: That's losing your job, not just having a bad mortgage and making poor financial decisions," said Guy Cecala, publisher of the trade publication, Inside Mortgage Finance.

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