Record Number of Americans Lost Homes in '07

March 6, 2008 — -- A record number of homeowners lost their homes to foreclosure in the final months of 2007.

At the same time, an increasingly larger number of borrowers were late making their payments, setting the stage for possibly even more foreclosures in the months ahead.

"We don't expect to see the peak in delinquencies or foreclosures until mid- to late 2008," said Doug Duncan, the chief economist of the Mortgage Bankers Association.

The group reported this morning that 2.04 percent of mortgages nationwide were in foreclosure from October to December of last year. A record number of homes also entered the foreclosure process during the three-month period.

Additionally, the number of homeowners more than 30 days late with their monthly payment rose to 5.82 percent, up from 5.59 percent in the previous three-month period. That earlier rate had been the highest on record since 1985.

The bankers association National Delinquency Survey covers nearly 46 million outstanding loans nationwide.

There was more bad housing news today. The Federal Reserve announced that Americans' percentage of equity in their homes has fallen below 50 percent for the first time since 1945.

Home equity is equal to the percentage of a home's market value minus mortgage-related debt. On average, housing is Americans' single largest asset.

Not surprisingly, subprime borrowers were most likely to have trouble making their monthly payments. Nearly 14 percent of subprime mortgages with fixed interest rates were more than 30 days late. A total of 3.8 percent of fixed rate subprime loans were in foreclosure.

For subprime borrowers with adjustable rate mortgages, the situation was even direr. One in five was delinquent and 13.4 percent of the loans were in foreclosure. Many of the homeowners fell into trouble even before their payments reset higher.

"Many of the loans were already entering foreclosure well before their interest rate resets hit, which indicated an underlying credit quality problem as the main driver," Duncan said, adding that the decline in house prices was also having an effect.

That implies that even more subprime borrowers who will see rate increases in the months ahead could begin to fall behind in their monthly payments.

The surge in mortgage foreclosures and delinquencies underscores the precarious state of the housing market nationwide. Prices for existing homes fell 4.6 percent in January, compared to a year earlier and sales dropped more than 23 percent.

As home prices drop precipitously in certain parts of the country, millions of homeowners now owe more than their home is worth.

And the number could rise even higher. Already, Moody's Economy.com estimates that as many as 10 percent, or 8.8 million homeowners, face this dilemma, a situation not seen since the Great Depression. Housing analysts worry that homeowners struggling to make their payments could simply walk away from their homes, further damaging the housing market as more homes would go into foreclosure.

Economists and forecasters do not expect the housing sector to recover until the end of 2008 at the earliest. They worry that the housing market could push the nation into recession, and, in a vicious cycle, that in turn could further exacerbate the housing situation, leading to even fewer sales and even greater price declines.

As in previous reports, the mortgage bankers report concluded that the once red-hot housing markets of California and Florida now represent a disproportionate share of the problems in the housing market.

"California and Florida are the two largest states in terms of mortgages outstanding and are the key drivers of the increase in national foreclosure rates," Duncan said.

Together, the two states have 21 percent of outstanding loans nationwide and account for 30 percent of mortgages that entered into the foreclosure process during the three-month period ending in December. The mortgage bankers group said that the number of homes entering foreclosure tripled year over year for Florida and doubled for California.

The Bush administration, Congress, the Federal Reserve, other bank regulators and even state and local governments have been implementing and considering additional proposals to help struggling homeowners with the goal of preventing further losses to consumers and the overall economy.

On Friday, the government will release unemployment figures for February, something the Federal Reserve will be watching closely.

It meets March 18 to vote on whether to lower a key interest rate with the goal of preventing the economy from falling into recession due to the troubles in the housing and financial markets.