Foreclosures Hit a Record; Pending Home Sales Steady


U.S. home foreclosures and the rate of homes entering the foreclosure process rose to
record highs in the fourth quarter, led by failing subprime loans, the Mortgage Bankers Association said.

The rate of failing loans swelled across most mortgage types but was led by a growing wave of subprime borrowers unable to make payments, the trade group said in its delinquency and foreclosure survey.

David Zalubowski

Meanwhile, pending sales of previously owned homes were unchanged in January, according to a better-than-expected reading from a real estate trade group report.

A record 0.83 percent of U.S. 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.

For subprime mortgage loans, the delinquency rate rose a full percentage point to 17.31 percent from the previous quarter. The easy terms of subprime loans drew many borrowers
with shaky credit, and those failing mortgages have stoked anxiety in credit markets worldwide.

Analyzing Housing Data

Wall Street and policy-makers have worried that foreclosures will grow when many subprime loans face a built-in interest rate reset in coming months. But MBA's chief economist, Doug Duncan, blamed the current spree of failing loans on poor credit quality of the borrower rather than a rate spike.

"The current delinquencies are due to credit quality rather than resets," he said.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in January, held steady at 85.9. Economists were expecting pending home sales -- which are
a key gauge of future home sales activity -- to fall by 1.0 percent.

NAR chief economist Lawrence Yun predicted that the volume of existing home sales will likely hold steady through late spring with a gradual recovery during the second half of next year, crediting higher mortgage loan limits for the expected improvement.

"This additional sign of a stabilizing market is encouraging, and our members are telling us there's been a pickup in shopping activity," said Yun.

But compared to a year ago, pending sales were down 19.6 percent and many analysts said it was too soon to call the market stabilizing.

Regionally, pending home sales were down in both the Northeast and the South and they were up slightly in the Midwest and by 13 percent in the West.

"Forgive us, if you will, but may we suggest that an outsized 13.0 percent climb in prospective sales in the West will not hold up upon further review," said Joseph Brusuelas US chief economist at IDEAglobal in New York.

"Some may be tempted to make a call of a bottom or stabilization in the housing sector, but we think that this is extremely premature. Prospective buyers may be probing the market for deals, but we strongly expect any surge in purchasing activity to a number of months, if not years away," he added.