US mortgage problems hit new peaks

NEW YORK: A stunning 48 per cent of America's homeowners who have a subprime, adjustable-rate mortgage are behind on their payments or in foreclosure, and that's not the worst of it, new data yesterday showed.

The reckless lending practices in states like Florida, California and Nevada that were the epicentre of the housing crisis are no longer driving up the nation's delinquency rate. Instead, the foreclosure crisis now is being fuelled by a spike in defaults in states like Louisiana, New York, Georgia and Texas, where the economies are rapidly deteriorating and thousands are losing their jobs.

A record 5.4 million American homeowners with a mortgage of any kind, or nearly 12 per cent, were at least one month late or in foreclosure at the end of last year, the Mortgage Bankers Association reported. That's up from 10 per cent at the end of the third quarter, and up from 8 per cent at the end of 2007.

Prime and subprime fixed-rate loans saw sharp increases in the fourth quarter, a sign that the problem is now the economy.
Duress is no longer isolated to borrowers with lower credit quality. As joblessness grew, so did late payments on prime fixed-rate loans that represent two-thirds of mortgages.

"We're seeing increases in fixed-rate categories and that's where the problems are coming from," said Jay Brinkmann, the association's chief economist. "The foreclosure picture is more clearly driven by the jobs market."

That trend highlights one of the biggest challenges confronting the Obama administration's mortgage relief plan launched this week. While the US$75 billion plan could help change the loan terms or refinance up to 9 million homeowners, unemployed borrowers will have a hard time qualifying.

Yesterday, the Labour Department said new unemployment claims last week totalled 639,000, lower than expected, but still at elevated levels.

Few economists expect a turnaround in the battered labour market anytime soon with companies laying off thousands of workers weekly.

The tally of initial requests for unemployment benefits fell to 639,000 from the previous week's figure of 670,000, the department said. Analysts expected a smaller drop to 650,000.

By AP, Reuters