US Homes in foreclosure top 1 million*

Mortgage bankers report hits grim a benchmark in first quarter, showing
a record number of homes in jeopardy.

NEW YORK (CNNMoney.com) -- More than one million homes are now in
foreclosure, the highest rate ever recorded, according to a trade group
which warned Thursday that number will continue to climb.

The Mortgage Bankers Association's first quarter report showed that a
record 2.5% of all loans being serviced by its members are now in
foreclosure, which works out to about 1.1 million homes. That's up from
the 2% of loans, or about 938,000 homes, that were in foreclosure at the
end of 2007.

The report also showed that 448,000 homes, or about 1% of loans being
serviced, began the foreclosure process during the first quarter. That's
up from about 382,000 homes, or 0.83%, that entered foreclosure in the
last three months of 2007.

The seasonally-adjusted rate of homeowners behind on their mortgage
payments also hit a record high. Nearly 3 million home loans, or 6.4%,
have missed at least one payment, while about 737,000 are at least three
months past due, but not yet in foreclosure.
Grim numbers

"The figures aren't surprising, but they're pretty ugly nonetheless,"
said Michael Larson, real estate analyst with Weiss Research. "We're
talking higher delinquencies and foreclosures pretty much across the board."

And he doubts that there's much reason to expect the foreclosure crisis
to abate until next year at the earliest, adding that it could be a
couple of years or more before foreclosure rates retreat to more normal
historical averages.

"It's the same story we've been seeing for a while now - we had too much
reckless lending, and buyers who got over-extended," he said. "We've had
an unprecedented decline in home prices on a nationwide basis, which is
public enemy number one for mortgage loans. And now you've got an
overall economy that has slowed adding to this toxic stew."
Good credit, bad credit

Much of the problem lies with subprime loans given to borrowers with
weaker credit records, especially those loans that had adjustable rates.
Nearly four out of ten subprime ARM loans are a month or more late, or
in foreclosure. And subprime ARMs account for 39% of the loans that fell
into foreclosure during the quarter.

Prime fixed-rate loans, which are considered very low risk, have also
seen sharp increases in their delinquency and foreclosure rates,
although they are performing far better than the riskier loans on the
market.

There are 431,000 prime loans in foreclosure, a seasonally adjusted rate
of 1.2% that is more than double the 0.5% rate a year ago.

The report showed about 1.2 million prime mortgages are now a month or
more past due, a seasonably adjusted rate of 3.7% of those loans. That's
up from a rate of 2.6% a year ago.

According to Jay Brinkman, MBA's vice president for research and
economics, the prime loan segment was hurt by so-called Alt-A loans,
which didn't require income verification for buyers with good credit.
Prime loans are also getting into trouble in places such as Florida and
California, which have seen sharp home price declines.

"You still have people with prime fixed rate loans who lose their jobs,
who get a divorce or have an illness come up, and can no longer afford a
house," Brinkman said. "In areas where there's been home price
appreciation, you can get out of that with the sale of a home or some
other negotiation."
Getting worse before it gets better

This marks the sixth straight quarter in which a record percentage of
loans went into foreclosure.

The trend has led to a widespread decline in home prices, as well as
huge losses for banks and other financial firms that issued or invested
in the loans.

Nearly half of the homes in foreclosure are concentrated in six states.
But those states are undergoing two very different types of housing
meltdowns.

California, Florida, Arizona and Nevada have been hit by a hangover
after a home building boom in the middle of the decade, which was fueled
by rising home prices and investors snatching up real estate using risky
mortgages. Those four states have nearly 400,000 homes in foreclosure,
or a third of the nationwide total. Roughly 3.6% of all of the loans in
these states are now in foreclosure.

"Clearly things in California and Florida are going to get worse before
they get better," said Brinkman.

The other two states that are ground zero for the crisis - Michigan and
Ohio - have been hit by the more traditional economic woes stemming from
rising job losses, particularly in the automotive sector.

Ohio has about 61,000 homes in foreclosure, while Michigan has about
54,000. The foreclosure rate in those two states is 3.9%.

There is a glimmer of good news. The rate of homes going into
foreclosure in Ohio and Michigan was narrowly lower than it was in the
fourth quarter, and 18 other states also saw a decline in that rate.

Brinkman said he hoped that means the crisis is at or near a bottom in
much of the country, and that foreclosure prevention efforts have
started to have an effect. But he added that a slight improvement in one
quarter doesn't necessarily mean the end is near.

Indeed, the rate of homes going into foreclosure continued to climb
sharply higher in California and Florida, as has the rate of loans in
those states that are 90 days or more past due but not yet in
foreclosure. Brinkman said that in markets like these, where home prices
have fallen so far from the market's peak, finding solutions to keep a
home out of foreclosure are more difficult.

He also added that, given the large impact California and Florida are
having on the national foreclosure numbers, and the fact that
historically foreclosures peak about three years into the loan's life,
he expects the number of foreclosures will continue to rise.