The recessionary economy is causing financial stress among a growing number of home owners.
Both late mortgage paying home owners and the number of foreclosures rose again in the third quarter 2001, the second consecutive quarter for increases in both numbers, according to the Mortgage Bankers Association of America (MBA).
Douglas G. Duncan, MBA's chief economist, blamed the recessionary economy and resultant higher unemployment for driving up delinquency rates. The Consumer Confidence Index rose to 93.7 points in December the first gain in six months, according to the Conference Board, but unemployment nationwide also rose to 5.8 percent in December. The nation lost 1.4 million jobs since March, the official start of the recession, according to the U.S. Labor Department.
In some cases mortgage holders can only blame themselves for tough times as many consumers have learned to live beyond their means.
The average savings rate plunged from 8.7 percent of incomes in 1992 to a paltry 1.0 percent in 2000, while the average household now owes 104 percent of its annual after-tax income, compared to only 85 percent in 1990 at the start of the last recession, according to "Over Our Heads: Can U.S. Consumers Repay Their Debts in the Recession?" by Standard and Poors' analyst David Wyss in New York.
Duncan also said the events of September 11 may have played a factor in higher short-term delinquencies.
"The weakening Gross Domestic Product (GDP) and job losses in the technology and manufacturing sectors have affected homeowners' ability to keep their mortgage payments current," said Duncan.
The previous hot economy's easy credit and over-extended home owners who planned to cash in on the now vaporized "wealth effect" of a once bullish stock market also likely contributed to the increase in the rolls of mortgage delinquents.
In the MBA's latest National Delinquency Survey (NDS), the national delinquency rate for loans on one- to four-unit residential properties was 4.87 percent in the third quarter of 2001, up 24 basis points from the second quarter of 2001. The percentage of loans in which foreclosure started during the quarter rose 2 basis points to 0.38 percent, while the percentage of loans in the process of foreclosure at the end of the quarter rose 4 basis points to 0.95 percent.
Some experts say the increase is relatively insignificant.
"What this is saying is that the number increased from 4.63 percent to 4.87 percent. That is a 5 percent increase from last quarter. I believe, that we were near record lows. How significant is this increase?" asked Richard Calhoun, owner-broker of Creekside Realty in San Jose, CA.
The significance is a nearly two-year trend of rising delinquencies.
Nationwide, delinquencies rose all year in 2000, falling only in the first quarter of 2001, only to rise again for two consecutive quarters, according to MBA. Foreclosures have been up every quarter this year, as the economy has grown more anemic.
Duncan said this year's earlier rises in delinquency rates also were caused by layoffs in the manufacturing sector and the maturation of the high-volume 1997-1999 originations moving into peak delinquency years, statistically speaking, as well as the weak GDP growth in the second quarter.
Unfortunately, for the hard working, but now unemployed home owner, the trend continued in the third quarter.
The tick up nationwide in both delinquencies and foreclosures for the second consecutive quarter holds special significance for financially over-burdened home owners who rode in on the cheap-money band wagon and foolishly thought they would always have bullish stock market returns to support their equity-squandering habits.
In any event, home owners can take action before repeated delinquencies ruin their credit or worse, become a foreclosure.
"Homeowners facing difficult times should call their mortgage servicing, or customer service department and see what programs are available for forbearance of payments," said Manuel Bernal a real estate broker and appraiser in San Juan Capistrano, CA.
"Lenders can add delinquent payments and taxes to remaining loan balances and or reduce payments to 50-75 percent of the scheduled payment for six to 12 months. They can also arrange a payment plan to make up any back payments in a 24 to 48 month payback period," he added.
Home owners who move quickly enough can also opt to sell, often with the lender's assistance.
"I know of a current example where (a mortgage company) is cutting the mortgage payment in half for six months to assist the homeowner while the home is put on the market for sale," Bernal said.
Nationwide, the increases in delinquencies and foreclosures were across the board, leaving no loan category unscathed.
The delinquency rate for conventional loans was 3.13 percent, up 20 basis points from the previous quarter, and the rates for FHA and VA loans were 11.36 percent and 8.11 percent-up 57 and 48 basis points, respectively, the MBA said.
The percentage of conventional loans in foreclosure increased 2 basis points to 0.70 percent, while the percentage of FHA loans in foreclosure increased 14 basis points to 1.94 percent. The percentage of VA loans in foreclosure rose 5 basis points to 1.25 percent.
Also the delinquency rate rose 18 basis points to 3.97 percent for fixed-rate mortgages and was up 30 basis points to 6.26 percent for adjustable rate mortgages, according to the MBA.
Home owners may also be able to save their homes by refinancing.
"Just last week, I closed a loan where the house and all the debt was in bankruptcy and near
foreclosure. Not only did I get him a refinance, but paid off all the debt, the bankruptcy attorney and fees and he received $50,000 cash in his pocket," said Jeffrey J. Jaye, a mortgage broker and executive vice president of Monument Mortgage, a lender licensed in 30 states.
"Even with bad credit, there are lenders willing to make loans and save families from losing their homes," Jaye said.
Tomorrow: More ways to protect your home from foreclosure.