A growing number of homeowners in Colorado and nationwide fell behind on mortgage payments during the final three months of 2006, sending the stock market tumbling and indicating that home prices overall could fall this year.
A report released Tuesday by the Mortgage Bankers Association, combined with tepid retail sales numbers for February, spooked investors and sent stocks sliding, erasing gains made in recent sessions.
The Dow Jones industrial average shed 242.66 points, or 1.97 percent, to close at 12,075.96. The S&P 500 and the Nasdaq composite both ended the day down.
The housing report covers more than 43 million loans, including 33.3 million prime loans, 6 million subprime loans and 4 million government loans.
Nearly one of every 20 home mortgage loans, or 4.95 percent, was past due. That’s up from 4.67 percent during the third quarter.
In Colorado, 4.37 percent of all payments were behind in the fourth quarter. That’s up from 3.9 percent in the third.
U.S. mortgages entering foreclosure rose to 0.54 percent of all loans during the fourth quarter, the report showed. That ranked as the highest rate ever recorded in the survey’s 37-year history.
“It could get a lot worse,” said Michael Kone, a principal with Housingmetrics, a Boulder- based firm that tracks the real-estate market. “If we see home sales really weaken, and appreciation goes negative, the latter part of the year would be dark.”
Kone said the fact that delinquencies were rising among prime loans suggested that even mid- to upper-priced home values could suffer. That segment in Denver has shown well amid the slumping real-estate market nationwide.
Doug Duncan, chief economist for the Mortgage Bankers Association, predicted that overall home prices could decline by 1 percent this year, recovering slightly in 2008.
“There could be outright declines in some markets,” Duncan said of his forecast for 2007.
Tuesday’s report showed that delinquencies increased across all loan types, especially among subprime ARMs, the adjustable- rate mortgage loans made to borrowers with impaired credit.
Nationally, 14.27 percent of subprime ARM loans were delinquent, compared with 11.72 percent in Colorado. Of all subprime ARM loans nationally, 4.53 percent were in foreclosure, compared with 5.44 percent in Colorado.
Overall, Colorado homes in foreclosure increased slightly to 1.46 percent. Compared with other states, Colorado ranked 29th in delinquencies and 12th in foreclosure rate, the report showed.
States with the highest late- payment rates included Mississippi, Louisiana and Michigan. States with the highest percentage of homes in foreclosure included Ohio, Indiana and Michigan.
“Although the U.S. economy and job market remain solid, the housing market continued to decelerate in the fourth quarter of 2006,” Duncan said during a conference call with reporters. “The significant increases in delinquency rates (have) in some cases led to unexpected increases in credit losses and the failure of some subprime specialist firms.”
About three dozen of the nation’s subprime mortgage lenders – including some with offices and customers in Denver – have gone under or stopped making loans during the last few months, according to www.ml-implode.com, a website that tracks closures in the subprime lending industry.
The latest example is New Century Financial, the nation’s second-largest subprime lender. Shares of the Irvine, Calif.-based company have fallen from more than $50 last May to less than $2 before trading was suspended Tuesday. New Century disclosed Tuesday it is the subject of a Securities and Exchange Commission probe.
Other subprime lenders, including Ownit Mortgage Solutions and Mortgage Lenders Network Inc., have recently filed for bankruptcy.
Staff writer Will Shanley can be reached at 303-954-1260 or wshanley@denverpost.com.
4.37%
Delinquent Colorado mortgages in the fourth quarter of 2006, up from 3.9 percent in the third
4.95%
Delinquent mortgages nationwide in the fourth quarter, up from 4.67 percent in the third
14.27%
Delinquent so-called subprime adjustable-rate loans nationwide
11.72%
Delinquent Colorado subprime ARMs
1.46%
Percentage of Colorado homes in foreclosure in the fourth quarter
Source: Mortgage Bankers Association
Fallout in the mortgage industry
Worries about subprime mortgage lenders dominated trading after news that New Century faces SEC troubles and was delisted:
Accredited Home Lenders $7.43 to $3.97
Impact: Says it must raise new funds to avoid defaulting on loans
Countrywide Financial $1.65 to $33.49
Impact: Slips for a second session after saying that a jump in foreclosures and problems with subprime lending could weigh on earnings
Washington Mutual $2.11 to $39.79
Impact: Slips on worries that its earnings will be negatively affected by its exposure to the subprime market
Fremont General $0.55 to $6.18
Novastar Financial $0.81 to $3.43
BLOOMBERG NEWS
Comparing types of mortgages
Subprime loans: These home mortgage loans are sought by those with limited or less-than- sterling credit histories, typically with credit scores below 650. The loans, which often feature adjustable interest rates that move above the market rate after a few years, are considered relatively risky for lenders and borrowers.
Prime loans: These mortgages account for the majority of home loans in the U.S. Borrowers generally have good credit scores, with the loans featuring relatively low interest rates.
WILL SHANLEY
