Second wave of mortgage defaults looms over US

Over 4 million homeowners either behind on payment schedules or in foreclosure at June end

THE SOURCE of trouble in the mortgage market has shifted from subprime loans made to borrowers with bad credit to homeowners who had solid credit but took out risky loans with ballooning monthly payments. 

    The Mortgage Bankers Association said on Friday that more than 4 million American homeowners with a mortgage — a record 9% — were either behind on their payments or in foreclosure at the end of June. "The problem that policy-makers and Wall Street once assured us was 'contained' to subprime mortgages has proven to be anything but true,'' Mike Larson, a real estate analyst with Weiss Research, said in a research note. 
    As the US economy falters and home prices keep falling, concern is building about a second wave of mortgage defaults flooding the market through 2010. 
    On Friday, the Labor Department said the nation's unemployment rate shot up to a fiveyear high of 6.1% in August. 
    A drop in income — whether through a lost job, divorce, death of a spouse, or health problems — is the No. 1 reason people fall beyond on their mortgages and lose their homes. But mortgage defaults and foreclosures in many areas, especially California and Florida, can also be blamed on egregious lending practices andrampant speculation by homebuilders and small investors alike. 
    "We are unlikely to see a national turnaround until we see a turnaround in the two largest states,'' with the most outstanding home loans, said Jay Brinkmann, the Mortgage Bankers Association's chief economist. The latest quarterly figures broke records for late payments, homes entering the foreclosure process and for the inventory of loans in foreclosure. The trade group's records go back to 1979. 
    The percentage of loans at least one month past due or in foreclosure was up from 8.1% in the January-March quarter, and up from 6.5% a year ago, using figures that were not adjusted for seasonal factors.

A. P. Herbert  - "A high-brow is someone who looks at a sausage and thinks of Picasso."