US Foreclosure Rates at Record High

[Jun 30, 2008.]

The US housing market is still experiencing fallouts from the credit crisis, according to information made available earlier today. The Mortgage Banker's Association has reported on Thursday that the amount of foreclosures has risen by more than 70% during the first quarter of 2008. That data reflects the fact that almost 1% of all mortgages in America have been foreclosed during the months of January, February, and April of 2008. For the same months of 2007, that figure was at 0.58%. Indeed, the foreclosure rate for the first quarter of 2008 is a 29-year record: the last time quarterly foreclosure rates were this high was 1979.

More disquietingly, prime-rate mortgages have been foreclosed in record numbers as well as subprime. The mortgage crisis has started to affect higher-quality loans. Although there are still more foreclosures of subprime mortgages than there are foreclosures of prime-rate mortgages, the prime-rate mortgages are catching up. During the first quarter of 2008, 195,000 subprime mortgages and 117,000 prime-rate mortgages have been foreclosed. However, the figure for prime-rate mortgage foreclosures reflects an increase of 29,000 more foreclosures since 2007. The figure for subprime mortgage foreclosures reflects an increase of only 20,000 more foreclosures since 2007.

Jay Brinkman, research vice president of the Mortgage Bankers' Association asserts that "the magnitude of the national increase is clearly driven by... certain states." The top states for mortgage foreclosures were Arizona, Florida, California, and Nevada. They were the locations of 42% of America's mortgage foreclosures this year.

These latest reported developments of mortgage crisis are bad news for Wall Street, because they hurt the performance and sales of mortgage-backed securities. Already, brokers have reported losses of approximately $250 billion for the first quarter of 2008 due to the poor performance of mortgage-backed securities.