Mortgage delinquencies hit new record

The good news is that the Associated Press doesn’t use a form of the word “unexpected” once in their report.  The bad news is that the contagion in mortgage delinquencies appears to have spread further into fixed-rate mortgages, a bad sign for the market:

The number of homeowners who missed at least one payment on their mortgage surged to a record in the first quarter of the year, a sign that the foreclosure crisis is far from over.

More than 10 percent of homeowners had missed at least one mortgage payment in the January-March period, the Mortgage Bankers Association said Wednesday. That number was up from 9.5 percent in the fourth quarter of last year and 9.1 percent a year earlier. …

Economic woes, such as unemployment or reduced income, are the main catalysts for foreclosures this year. Initially, lax lending standards were the culprit. But homeowners with good credit who took out conventional, fixed-rate loans are now the fastest growing group of foreclosures.

Those borrowers made up nearly 37 percent of new foreclosures in the first quarter of the year, up from 29 percent a year earlier.

Why are these loans failing at a higher rate?  Most likely, it’s due to unemployment.  As people remain unemployed for longer periods of time — and the average length of unemployment is at its highest in decades — they will miss more house payments regardless of whether they bought responsibly or not.  The irresponsible buyers have mostly been identified in the foreclosures.

This is bad news indeed, more so than the overall rate increase.  While the market needed to correct for irresponsible lending, a correction delayed by gimmicks from the Obama administration, the risk now is an extended collapse in the housing and lending markets as inventory increases and lenders take more losses.  The only real cure for this is to stimulate large-scale economic growth, but the Obama administration has already wasted a year with an ineffective stimulus plan and shackled growth through its signals on taxes, fees, and debt.

With unemployment expected to remain high for the next two years, homeowners should be prepared for a rocky ride on their home values … and maybe should plan on staying put for a while.