UPDATE 1-US late mortgage payments, foreclosures hit record

(Adds quotes from MBA conference call, economist quotes, background)

By Lynn Adler

NEW YORK, Dec 5 (Reuters) - Late mortgage payments and the rate of home loans in foreclosure rose to record highs in the third quarter, threatening to escalate as the recession erases jobs and further strains homeowners, the Mortgage Bankers Association said on Friday.

The number of loans entering the foreclosure process would have been even higher without various programs halting them in favor of loan modifications.

A spiking unemployment rate in the midst of what many economists fear to be a deep recession, however, points to rising mortgage delinquency and foreclosure rates next year, the trade group said.

"We haven't gone into past recessions with a housing market in as bad of a shape," Jay Brinkmann, chief economist and senior vice president for research and economics, told Reuters in an interview.

The Mortgage Bankers Association estimates 2.2 million home mortgages will start the foreclosure process this year, before sweeping national efforts to stem the tide take effect.

"The bigger issue is going to be the underlying economy," Brinkmann said. "As much as any of the overbuilding issues, poor lending or speculative issues, as these job losses spread to some of the rest of the economy ... That certainly doesn't speak to a foreclosure rate coming down."

The share of loans in the foreclosure process rose to a record 2.97 percent from 2.75 percent the prior quarter and 1.69 percent a year earlier, the trade group said.

U.S. employers cut 533,000 jobs in November, the weakest performance in 34 years, according to the Labor Department on Friday. Unemployment rose to a 15-year high of 6.7 percent.

"The economy as a whole has been doing very poorly. The job market is equally dismal and home prices are falling," said Millan Mulraine, economics strategist at TD Securities in Toronto. "We have an increasing number of homeowners whose homes are becoming under water and that clearly doesn't offer much incentive to remain in the home."

The rate of one-to-four-unit residential loans at least one payment past due rose to a seasonally adjusted 6.99 percent in the third quarter, up from 6.41 percent in the second quarter and 5.59 percent a year ago.

Mulraine said that he expected both delinquencies and foreclosures to rise in coming months, adding: "A number of initiatives are in motion that eventually will have a positive impact, but it will take time for those to take hold."

Loans that were 90 days or more past due. but not in foreclosure, raced to a record in the quarter. This indicated that more companies were holding onto troubled mortgages longer in effort to alter terms and avert foreclosure.

While 20 states showed declines in the rate of foreclosure starts between the second and third quarters, every state but Alaska had an increase in the 90 days or more delinquent category, the MBA said in a release.

But the share of loans entering the foreclosure process was flat overall in the third quarter, with rates differing greatly depending on loan type and location.