Banks continue to see rise in delinquent payments

From The New York Times

The number of people paying their mortgages late — or not paying them at all — picked up in recent months, a trend that is expected to continue well into next year.

The rise was sharpest among borrowers with troubled credit histories, and in particular, subprime borrowers who took out mortgages with interest rates that increase over the life of the loan.

The Mortgage Bankers Association said yesterday that a survey of more than 42 million mortgages found the rate of delinquencies rose to 4.7 percent from July through September, up from 4.4 percent in the second quarter, when the numbers were adjusted for seasonable variations.

The rate had fallen for two consecutive quarters.

Among subprime homeowners, designated as such because their questionable credit would otherwise disqualify them from obtaining a mortgage, delinquency rates were much higher. Subprime borrowers who had past-due payments rose to 12.6 percent, from 11.7 percent in the second quarter.

Subprime borrowers who took out adjustable-rate mortgages, which typically start at artificially low rates that increase over the life of the loan, were the most likely of all those surveyed to be in default. Among subprime adjustable mortgages, 13.2 percent were delinquent in the third quarter, compared with 12.2 percent in the second quarter.

Subprime loans, which carry interest rates that run roughly three percentage points or more above the rates available to people with strong credit, have become the fastest-growing segment of the mortgage industry. And among subprime loans, adjustable mortgages have proliferated with the boom in the housing market.

Looking ahead to next year, the mortgage association said it expected delinquencies and foreclosures to continue to rise. Doug Duncan, the association’s chief economist, said he saw a “modest increase” over the next several quarters “as the housing market bottoms.”

As more adjustable mortgages reset next year at higher rates, the number of defaults is expected to climb. Mr. Duncan said that $1.1 trillion to $1.5 trillion worth of residential debt was eligible to reset next year, which could put pressure on mortgage holders who did not refinance.

Delinquencies were most common in the Upper Midwest, where the manufacturing slowdown has pushed unemployment up, and in the South, where the spillover effects from Hurricane Katrina continue. Mississippi had the highest overall delinquency rate, at 11.1 percent of all mortgages, more than twice the national average. It was followed by Louisiana at 9.5 percent and Michigan at 7.4 percent.