WASHINGTON U.S. home foreclosures and the share of borrowers who face losing their homes rose to records in the fourth quarter and those figures will worsen, a mortgage industry trade group said on Thursday.
The rate of failing loans swelled across all mortgage types but was led by a growing wave of subprime borrowers unable to make payments, the Mortgage Bankers Association said in its delinquency and foreclosure survey.
The rate of failing home loans should climb through much of the year as national home values sink, said MBA chief economist Doug Duncan.
"You should expect to see, as long as house prices are declining, an increase in delinquencies and foreclosures," he added.
Lower home values make it difficult for struggling homeowners to refinance and can create an incentive for them to simply walk away from their home and mortgage.
"We don't expect to see the peak in delinquencies or foreclosures until mid to late 2008," Duncan said.
A record 0.83 percent of U.S. home loans were entering the foreclosure process in the last three months of 2007 compared with 0.54 percent in the same time a year earlier.
The U.S. mortgage delinquency rate of 5.82 percent was the highest since 1985 and up from the 4.95 percent seen in the fourth quarter of 2006.
The rising foreclosure rate itself damages the home sales market since it adds to the glut of unsold homes and so puts downward pressure on prices.
The value of existing single-family homes in metro regions fell by a record 5.8 percent in the fourth quarter from the same period in 2006, the National Association of Realtors said last month.
Still, such a painful price correction is necessary to get out of the current housing slump, said Richard Dekaser, Chief Economist for National City Corp., Cleveland.
"The price decline we have already experienced is helping to restore the housing market toward equilibrium," he said.
While just over one in twenty homeowners were missing monthly payments during the last three months of 2007, almost one in six subprime borrowers were delinquent.
The easy terms of subprime loans drew many borrowers with shaky credit during the credit boom and those failing mortgages have stoked anxiety in credit markets worldwide.
Wall Street and policy-makers have worried foreclosures will grow when many subprime loans face a built-in interest rate reset in coming months but recent rate cuts by the Federal Reserve Board have eased those concerns.
Since mid-September, the Fed has lowered overnight interest rates to 3 percent from 5.25 percent.
"The problem (of subprime resets) will be much less than thought though it will not be completely ameliorated," Duncan said.
(Reporting by Patrick Rucker; Editing by James Dalgleish)