Subprime loans boost late payments, foreclosures

NEW YORK (Reuters) - Late payments on U.S. mortgages increased in the fourth quarter to their highest level in three and a half years and foreclosures rose, driven by subprime borrowers with weak credit, the Mortgage Bankers Association said on Tuesday.

The MBA also pushed back its prediction for when the U.S. housing sector will regain its footing, saying this will be toward the end of this year instead of its December forecast that a turnaround would happen in the middle of 2007.

Delinquencies rose for all loan types but were largest for subprime adjustable-rate loans that reset at higher interest rates, the industry trade group said in its quarterly National Delinquency Survey.

"Subprime borrowers are more likely to be susceptible to the cumulative increases in interest rates that we have experienced and the resultant nationwide slowing of home-price appreciation, including outright declines in some markets," said MBA chief economist Doug Duncan.

Problems in the subprime mortgage sector, which involves loans to riskier borrowers, have been a major factor hitting the U.S. financial markets in recent weeks.

The overall mortgage delinquency rate increased to a seasonally adjusted 4.95 percent in the fourth quarter, up from 4.67 percent in the prior quarter and from 4.70 percent in the fourth quarter of 2005.

Subprime adjustable-rate mortgage (ARM) delinquencies jumped to 14.44 percent in the fourth quarter from 13.22 the prior quarter, while prime ARM delinquencies rose to 3.39 percent from 3.06 percent.

The percentage of loans in the foreclosure process rose to 1.19 percent of all loans outstanding in the fourth quarter to the highest level in nearly three years.

Mississippi, Louisiana and Michigan had the highest overall delinquency rates, well above the national average, at 10.64 percent, 9.10 percent and 7.87 percent, respectively.

The states with the largest increases in overall delinquency rates from the prior quarter were West Virginia, Maine and Florida.

At the regional level, the Northeast's overall seasonally adjusted delinquency rate of 4.58 percent and the West's 3.18 percent rate were below the 4.95 percent national average. The North Central region's late payment rate of 5.68 percent and the South's 5.71 percent rate exceeded it.