"During the rising market, if you lost your job, got sick or your marriage failed you always had a parachute: Sell the house, pay off your mortgage and have something left to start again," said consumer finance expert Elizabeth Warren, a professor at Harvard Law School. "Or sometimes you could use your home equity line of credit to get by."
But now, for most people, "that parachute has gone up in flames," Warren said.
In California, delinquencies on prime mortgages could increase for years, said Christopher Thornberg, founder of consulting firm Beacon Economics in Los Angeles.
One reason, he said, is that home lenders became so complacent during the housing boom that they did little to qualify borrowers besides having computers check a few facts.
" 'Prime' lost a lot of meaning in the insanity of the last few years," said Thornberg, who was one of the first experts to foresee the housing downturn.
To be sure, the damage has been greatest in subprime mortgages, the high-risk loans tapped heavily during the go-go years by borrowers with the worst credit, the heaviest debt loads or the lowest down payments (and sometimes all three of those).
In August, more than 43% of subprime loans nationally were in foreclosure or at least 60 days late in paying, a rate nearly double that of August 2007, according to First American CoreLogic's LoanPerformance unit, which tracks 82% of all U.S. loans.
But problems with prime loans are increasing as fast or faster. About 7.5% of prime jumbo mortgages -- high-quality home loans too large to be sold to government-backed Fannie Mae and Freddie Mac -- were at least 60 days late or in foreclosure, according to LoanPerformance. That was more than three times the level of a year earlier.
As a result, prime loans account for a larger proportion of foreclosures than they did in August 2007.
In Murrieta, Jones said she never wanted anything other than a safe, prime loan. She has worked nearly nonstop since she was 19. She moved from El Cajon to Murrieta in 2005 with her adult daughter, who provided $20,000 of the $80,000 down payment on the new three-bedroom home.
With property values still rising, they took out a second mortgage for home improvements in 2006, a 15-year loan for $40,000 with a fixed interest rate of 9.25%, bringing their total mortgage debt to about $355,000. Between her salary in Corona and her daughter's work at a preschool, the $2,276 in monthly home loan payments was manageable.
