The decline of housing markets in California and Florida has led to record numbers of foreclosures and is causing even good borrowers to pay more for loans, according to analysis and statistics released Friday.
To add to the bleak picture, the government Friday reported the eighth straight month of declining employment, increasing pressure on borrowers burdened by tumbling home prices and loans with rising interest rates. The U.S. jobless rate jumped in August to a nearly five-year high of 6.1%, with nonfarm payrolls down 84,000.
"It's really the very last thing the housing market needs right now -- unemployment going up and we're heading into a recession," said Richard K. Green, director of the USC Lusk Center for Real Estate.
Job losses in construction and lending in the hard-hit Inland Empire are spreading to manufacturing. "And that causes a spillover effect," Green said. "If manufacturers are laying off people this month, retailers are likely to be laying off people next month."
The Mortgage Bankers Assn. said Friday that the one-two punch of declining home prices and resetting adjustable-rate loans in California and Florida is largely responsible for unprecedented national foreclosure numbers.
"The worst states are continuing to get much worse," the MBA's chief economist, Jay Brinkmann, said during a conference call discussing the group's second-quarter report on mortgage delinquencies.
With a combined 18% of the population, "California and Florida accounted for 39% of all the foreclosures started in the country," Brinkmann said.
The national average for foreclosure starts -- a lender's turning over of a delinquent loan to lawyers -- was 1.09% during the quarter, up from 0.99% for the first quarter and 0.65% a year earlier, the MBA said. The latest figure was 1.82% in California, which has 12% of the nation's population, and 2.21% in Florida, which has 6% of the population.
Nationally, the percentage of loans at some stage in the foreclosure process was 2.75%, up from 2.47% in the first quarter and 1.4% in the second quarter of 2007. The California number was 3.86% and Florida was at an even 6%.
The figures are the highest since the MBA began publishing its survey 29 years ago, Brinkmann said.
Tricky pay-option adjustable-rate mortgages, which allow borrowers to pay so little that their loan balances rise, were more common in California and Florida, the MBA said. These "option ARMs" show up in MBA data as prime mortgages because they were made to borrowers with decent credit scores.
When these loans "recast" and require full payments, three to five years after they were made, borrowers are finding themselves with sharply higher payments on higher loan balances than they started with, at a time when their home values are sharply lower.
Seriously delinquent loans -- those with payments at least 90 days in arrears -- totaled 7.73% of all adjustable-rate prime loans in California in the second quarter. The Oregon percentage was 3.04% and in Washington state it was 2.41%, the MBA said.
Such figures have spooked lenders and investors in loans, driving rates higher for even the best California borrowers. Mortgage broker rate sheets show Californians are paying half a percentage point more than borrowers in Washington and Oregon for all prime loans except those eligible for purchase by Fannie Mae and Freddie Mac, the government-sponsored loan buyers, Green said.
Subprime adjustable-rate mortgages, those made to the highest-risk borrowers, were also at higher levels in California. The serious delinquency rate hit 32.33% on California subprime ARMs, compared with 14.26% in Oregon and 13.65% in Washington, the MBA reported.