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The Honolulu Advertiser
Posted on: Friday, October 4, 2002

More homeowners suffer mortgage woes

By Dave Carpenter
Associated Press

CHICAGO — Unexpected troubles are puncturing the American dream for increasing numbers of people nationwide.

It's the flip side to the happy homeowner scenario: Even with mortgage rates at record lows, mortgage delinquencies are increasing and home foreclosures have climbed to all-time highs.

According to data released recently by the Mortgage Bankers Association of America, 0.4 percent of loans entered foreclosure in the second quarter and another 1.23 percent were still in the process — both unprecedented in the 30 years the group has been keeping track.

The biggest culprit: rising unemployment, with sinking stock portfolios, illness and easy financing all contributing.

The north-central United States, including layoff-hit manufacturing areas, topped all regions with 0.47 percent of loans entering foreclosure in the second quarter.

But the trend has left no area untouched. The South had the most mortgage problems as measured by payments 90 days or more overdue, nearly 1 percent, while Nevada, Pennsylvania and Utah were among other trouble spots.

All types of borrowers have succumbed — from six-figure earners who defaulted on $300,000 jumbo loans to middle-income couples buried in credit-card debt to first-time homebuyers taking advantage of low rates to squeeze into a house.

The mortgage group's chief economist, Doug Duncan, says the main reason is the recession, which cost 1.8 million jobs and shrank many paychecks as overtime fell.

Also behind it is the proliferation of nontraditional loan programs that mushroomed as mortgage rates sank, enticing borrowers into taking on more debt than they could handle, often at brokers' urging.

More liberal lending practices have helped boost U.S. home ownership to 68 percent of all households, up from 63 percent a decade ago. But experts say some of the innovative loans, including ones for 97 percent and even 125 percent of the home's value, are showing cracks under the stress of an economic downturn.

"If Joe Sixpack can only scrape together 3 percent of the value of the home or less and has to borrow the rest, he's got no cushion if he loses his job or gets divorced," said James Croft, executive director of the Mortgage Asset Research Institute.

Not unlike when stocks started plummeting, the mortgage miseries have stirred panic among many distressed borrowers and prompted a sharp rise in demand for financial counseling.

"They're scared they're going to lose their house," says Melinda Wright, education director of Consumer Credit Counseling Service of Central Indiana, which doubled its typical mortgage delinquency workload to 30 appointments last month. "And they're blaming themselves. They say, 'I should have known better.' "

Still, experts say there's no cause for national alarm about the foreclosure trend. San Francisco-based Loan Performance, which tracks mortgage loan data monthly, says foreclosures and delinquencies may be flattening and recent loans are performing well.