Oregon's mortgage pain spreads to prime borrowers

Real Estate Broker/Owner with Premier Real Estate

By Ryan Frank, The Oregonian

November 20, 2009

Nearly one in 10 Oregon homeowners was late on at least one mortgage payment this fall, the highest rate on record, and those troubles are expected to grow worse into 2010.

The Mortgage Bankers Association says about 9.4 percent of Oregon's 631,000 mortgages were delinquent or in foreclosure in the third quarter. That's up from 5.2 percent a year ago and outpaces the 7.7 percent high from the 1980s recession.

After starting with risky subprime loans, the foreclosure frenzy has pushed deeper into more traditional prime loans. The state's double-digit unemployment rate has dragged more credit-worthy borrowers with prime loans into default. The rate of prime loans in Oregon at least one payment late has more than doubled in a year.

The downbeat report chills recent hopes that stabilized home prices might signal a housing market rebound.

Mark McMullen, a Moody's Economy.com director, said he expects foreclosures to "continue to rise through the middle of next year as the (foreclosure) moratoria expire."

Growing foreclosures will drag down home prices elsewhere. Those falling prices will pull more homeowners into a financial pinch as their home value falls below their mortgage debt.

"It's a bad cycle, and it is one of the primary risks to our outlook," McMullen said.

Nationally, about 14 percent of homeowners were behind on at least one payment or in foreclosure in the third quarter. It was a record-high figure for the ninth straight quarter.

In the U.S., prime fixed-rate loans to borrowers with good credit accounted for nearly 33 percent of new foreclosures last quarter. That compares with 21 percent a year ago.

"Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP," Jay Brinkmann, chief economist at the Mortgage Bankers Association, said in a statement.

The Mortgage Bankers Association's quarterly survey of 44.6 million loans is considered the country's most authoritative report on foreclosures.

Even with its growing trouble, Oregon stacks up relatively well compared with the "sand states" of California, Florida, Arizona and Nevada. Those four states accounted for 43 percent of all new foreclosure filings in the third quarter.

In a conference call, Brinkmann pushed back his forecast for the peak of the foreclosure crisis from late 2010 to sometime in 2011, according to the financial blog Calculated Risk. 

Brinkmann delayed his projection because he expects unemployment to remain high and he thinks prime borrowers will try to hang on to their homes for a while before defaulting.


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