Subprime delinquencies spike as jobless climbs

By Walden Siew

NEW YORK (Reuters) - Delinquencies on U.S. subprime mortgage securities, auto loans and credit cards are soaring as job losses engulf borrowers who had navigated the credit crunch, threatening to worsen the global credit crisis.

Subprime mortgage delinquencies rose to a record level in October as rates reset higher and as unemployment increased, research firm CreditSights said. Similar trends are playing out in credit cards and subprime auto loans, where late payments shot to an 11-year high in September.

Residential mortgage-backed securities originated between 2005 and 2007 took the biggest hits, as delinquencies are climbing after a slowdown due to tax rebates.

"Unfortunately the benefits from the rebates have proved short-lived and the scale of the recent deterioration is alarming," the report said. "Part of this recent weakness is probably caused by the dramatic rises in unemployment."

The number of U.S. workers drawing jobless benefits hit a 25-year high this month, the Labor Department reported on Thursday. The U.S. jobless rate shot to a 14-year high in October at 6.5 percent.

"Now that unemployment is rising, those that until now could and did pay their mortgages may well find they have no option but to default," CreditSights said.

A record 11.6 percent of homeowners with subprime mortgages haven't made a payment for 60 to 90 days, according to CreditSights.

The government has launched various programs such as Hope for Homeowners to prevent more delinquencies from becoming foreclosures, which have worsened the housing crisis by dumping homes on the market and depressing prices.

"It is possible that delinquent borrowers are making payments to keep their mortgages at the same degree of delinquency while they wait for mortgage investors to jump on board HOPE for Homeowners," CreditSights said.

The $300 billion Hope for Homeowners program started on October 1.

Regardless of the impact of the program, delinquencies are surging on a range of consumer loans.

Delinquencies of asset-backed securities supported by subprime auto loans shot to 4.28 percent in September and are expected to climb further, Fitch Ratings said in a recent report.

Some issuers of credit cards are expected to suffer record losses next year as delinquencies mount and the economy worsens, Fitch said this month in a separate report.

Interest rate adjustments have also hurt homeowners.

A big portion of 2005 and 2006 mortgages matured and adjusted from fixed- to floating-interest rates recently, potentially setting borrowers up for "payment shock." About 20 percent of 2006 mortgages and 90 percent of 2007 mortgages have yet to move to floating rate payments, a sign that more delinquencies and defaults are on the horizon.