Delinquent mortgage loans - The delinquency rate for mortgage loans on one-to-four-unit residential properties was 4.70 percent at the end of the fourth quarter, up from 4.38 percent in the fourth quarter of 2004 and 4.44 percent in the third quarter of 2005, according to the fourth quarter 2005 National Delinquency Survey (NDS) released today by the Mortgage Bankers Association (MBA).

This quarter's NDS results cover over 41.2 million loans (31.1 million prime loans, 5.5 million subprime loans and 4.6 million government loans).

The percentage of loans in the foreclosure process was 0.99 percent at the end of the fourth quarter, a drop of 16 basis points from the previous year and an increase of 2 basis points from the third quarter of 2005.  The seasonally adjusted (SA) rate of loans entering the foreclosure process was 0.42 percent in the fourth quarter, down 4 basis points from the previous year and up 1 basis point from the previous quarter.

More Americans fell behind on their mortgage payments at the end of last year. Doug Duncan, MBA's chief economist and senior vice president stated: "The increase in delinquencies is not surprising. We have been expecting an up-tick in delinquencies due to a number of factors: the seasoning of the loan portfolio, the increased shares of the portfolio that are ARMs and subprime mortgages, as well as the elevated level of energy prices and rising interest rates."

Homes going into foreclosure reached alarming levels in a handful of Midwest states that were once the backbone of industrial America but have seen an exodus of manufacturing jobs.

About one in five mortgages in Louisiana and Mississippi was overdue. But the results in those two states simply magnify the trend in the national data.

The Federal Reserve raised interest rates twice in the last quarter and once so far this year, and could raise again, which would be bad news for the 25% of borrowers with adjustable mortgages. When someone loses a home through foreclosure, the consequences extend far beyond the homeowner.

"It's a domino effect," said Lorie Batdorf of Neighborhood Housing Services in Hamilton, Ohio, a non-profit group that helps low-income buyers. She notes that foreclosures often lead to abandoned homes, vandalism, increased police visits and a lower tax base. "The neighbors still there see a decrease in property values, so it affects everybody."

Ohio had the highest number of loans in foreclosure for the second year in a row. In addition to layoffs at auto and steel factories, residents have fallen victim to predatory lenders. About 16% of mortgages made in Ohio last year were predatory loans, and nearly half the foreclosures involved such loans, said Batdorf, who serves on a state foreclosure task force. A predatory loan typically has unfavorable terms and high fees, which are poorly disclosed or understood.

The number of foreclosures is expected to rise this year. The rates of new foreclosures in Michigan, Indiana, Wisconsin and Georgia are at their highest since 1979.

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