Risk of foreclosure dips over summer, but remains elevated

NEW YORK - The number of Americans at risk of foreclosure improved slightly over the summer but hardly enough to suggest the crisis in the housing market is close to over.

The Mortgage Bankers Association said last week about 9.1 percent of homeowners had missed at least one mortgage payment in the July-September quarter. That figure, which is adjusted for seasonal factors, fell from 9.9 percent in the April-June quarter and from a record high of more than 10 percent in the January-March quarter.

The percentage of homes in the foreclosure process fell slightly to 4.4 percent from 4.6 percent, the trade group said. And the percentage of mortgage holders who were seriously delinquent, at least 90 days past due, fell to 4.3 percent from 4.8 percent.

In a normal market, the percentage of seriously delinquent borrowers is around 1.1 percent, said Michael Fratantoni, MBA's vice president of research and economics.

The drop in the delinquency rate reflects a slightly better jobs market, Fratantoni said, but delinquencies and foreclosures remain elevated. They are expected to stay that way as long as unemployment is high and home values continue to fall.

"We still have three to four years to work through this overhang of delinquent loans, Fratantoni said.

The foreclosure crisis started years ago when borrowers took out risky loans with variable interest rates that they couldn't afford. Many also qualified for mortgages without providing documented proof of income.

But now, the foreclosure crisis is spreading to homeowners with good credit who took out safe, fixed-rate mortgages. The foreclosure start rate for those with fixed-rate mortgages set a record high of 0.93 percent in the July-September quarter, according to the report.

Allegations of faulty foreclosure paperwork will likely increase the foreclosure inventory in the next two quarters, the MBA estimates. Several major lenders have temporarily suspended foreclosures to review thousands of cases for improper handling. Attorney generals in all 50 states launched a joint investigation into the issue.

However, this will only delay foreclosure sales coming on to the market, not stop them. Lenders are on track to take back more than 1 million homes this year, according to foreclosure listing service RealtyTrac Inc.

That will continue to weigh on home values because foreclosures are sold at deep discounts and slow the country's housing recovery.