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It’s not like we didn’t know it was coming, but apparently it’s coming with a vengeance.

Prime fixed-rate loans have finally leapfrogged those nasty subprimes to take the lead in the race to foreclosure. The foreclosure rate on primes has in fact doubled in the last year, and almost half of the overall increase in foreclosure starts in the first quarter of this year was due to the increase in primes.

I got a call yesterday from Scott Scredon at the Consumer Credit Counseling Services in Atlanta. He says they’ve seen a distinct change in callers. “We’re getting calls from engineers and attorneys and post graduate students,” he says. “Many of these people run through their 401Ks and their savings and start living off credit cards and then they call a counseling agency for help. So it’s a new kind of person we’re seeing today, but it’s a sign of the times.”

So I asked Jay Brinkmann, chief economist over at the Mortgage Bankers Association, why all these aggressive industry and government modification programs aren’t helping, especially if the troubled borrowers are not in those nasty, exotic subprime loans.

“We have seen already in April a step up in some of the actions filed on people who don’t qualify. But when we look at vacant homes, when we look at cases where people are simply out of work, there’s simply nothing there that can be modified or worked out if they don’t have a job,” notes Brinkmann. On top of that, more and more borrowers are redefaulting and ending up in the mod system again. “Unfortunately, people that can’t live up to the promises they made originally when they were in a loan workout situation or simply that they were hoping things were going to get better and they did not. They then get back into the process and end up going to foreclosure. I think those factors will continue to drive the numbers up,” adds Brinkmann.

And one more thing: Freddie Mac estimates that 40% of the loans they have in foreclosure are on vacant homes. The borrowers don’t want a modification. Home prices have fallen so far that they will not see any equity for decades. So why pay?

On the bright side, if you can find it, the bulk of the trouble is still centered in four states: California, Nevada, Arizona and Florida, with Michigan, Ohio and Illinois close runners up. Brinkmann was surprised to see less of a national rise in foreclosures, but he is expecting it in the coming months.

Questions?  Comments?