Late mortgage payments shot up in the third quarter as higher interest rates squeezed budgets and made it harder for homeowners — especially those with weaker credit records — to keep up with their monthly obligations.
The Mortgage Bankers Association, in its quarterly snapshot of the mortgage market released Wednesday, reported that the percentage of mortgage payments that were 30 or more days past due for all loans tracked jumped to 4.67 percent in the July-to-September quarter.
That marked a sharp rise from the second quarter's delinquency rate of 4.39 percent and was the worst showing since the final quarter of last year, when delinquent payments climbed to a 2½-year high in the aftermath of the devastating Gulf Coast hurricanes.
The association's survey covers 42.6 million loans.
Delinquency rates in the third quarter were considerably higher for “subprime” borrowers — people with weaker credit records who are considered higher risks — especially those who have adjustable-rate mortgages.
Subprime borrowers had a delinquency rate of 12.56 percent in the third quarter, the highest in more than three years. The delinquency rate for these borrowers holding adjustable-rate mortgages was even higher — at 13.22 percent in the third quarter, also the worst reading in more than three years.
People holding adjustable-rate mortgages have seen their payments rise as the Federal Reserve ratcheted up short-term interest rates over the past two-plus years.
Experts say this has particularly strained people who stretched financially to buy a home during the housing boom, when home prices were lofty. This year the housing market is in a deep slump. In some markets home prices have dropped; in others they haven't gone up nearly as much as they had during the go-go days.
For those financially strapped homeowners, the combination of slumping prices and rising interest rates can be painful. If the value of their homes drops, their loans could be worth more than their property. If their interest rates rise, their loans would become more expensive to pay off.
“Increases in delinquency rates were noticeably larger for subprime loans, particularly for subprime ARMs,” said Doug Duncan, chief economist at the Mortgage Bankers Association. “This is not surprising given that subprime borrowers are more likely to be susceptible to the cumulative increases in rates we've experienced, and the slowing of home-price appreciation that has resulted. It is important to remember that delinquency and foreclosure rates have been quite low the last two years.”
The association's survey also showed that the percentage of mortgages that started the foreclosure process in the third quarter climbed to 0.46 percent. That was up from 0.43 percent in the prior quarter and was the highest in nearly two years. Foreclosure rates were the highest for subprime borrowers.