Mounting unemployment is pushing foreclosure rates higher in the United States, and driving even Americans with good credit from their homes in greater numbers.
What began as a crisis among home owners with bad credit and subprime mortgages has spread to the those with traditionally safer fixed-rate mortgages. A strong housing sector is seen as key to any economic recovery, but rising unemployment and a stagnant economy threaten to erase recent signs of stabilization.
Worsening the problem, millions of unconventional mortgages issued to Americans who didn't even have to prove they had a job are due to reset in the next two years, further harming the sector's prospects.
"The stability we've started to see in U.S. housing was likely a false calm before a bigger storm," said Derek Holt, vice-president of economics for Scotia Capital. "There are millions of homeowners under threat of losing their homes in the next two years."
The Mortgage Bankers Association said Thursday a record one in seven U.S. mortgages, or four million homeowners, were in foreclosure or at least one payment late in the third quarter. The housing market accounts for about 20 per cent of the U.S. economy, and a stabilization in plummeting property values is seen as a key pillar of an economic recovery.
Americans with solid credit ratings comprised 33 per cent of the quarter's foreclosures.
The highest jobless rate in 26 years made it impossible for many homeowners to make their payments in the quarter.
"Prime fixed-rate loans continue to represent the largest share of foreclosures started and the biggest driver of the increase in foreclosures," MBA chief economist Jay Brinkmann said. "The foreclosure numbers for prime fixed-rate loans will get worse because those loans represented 54 per cent of the quarterly increase in loans 90 days or more past due but not yet in foreclosure."
Increased foreclosures among those with good credit is a problem in any recession, said Jennifer Lee, an economist at BMO Nesbitt Burns, but this time the increase comes after the subprime crisis forced millions from their homes and pushed prices down as much as 50 per cent in some cities.
Not only are they losing their jobs and falling behind on loan payments, sharply lower prices mean they aren't able to simply sell their homes to pay off their banks.
"We can't say what is typical any more in the housing sector because we've never experienced anything like this," she said. "People need to start working again, because when they do find work the first thing they do is get back on track with their mortgages. But, that isn't likely to happen soon."
An increase in foreclosures would add to the country's inventory of homes, Here estimated at seven months, and drive prices lower yet. And while the worst of the subprime crisis is likely past, analysts said the next wave of bad loans will likely come from alternative mortgages that de-emphasized credit ratings and employment.
Most of these have five-year reset rates, and were issued at the height of the market's bubble. They start coming due in January.
"You didn't have to prove a thing to get one," Mr. Holt said. "They haven't been a problem because they have such long fuses. But those fuses are just about done, and we're heading into entirely uncharted territory."
While the U.S. government has created programs to help keep people in their homes, the Congressional Oversight Panel for the Troubled Asset Relief Program said earlier this month that more must be done.
Those who work closely with homeowners said that the programs are slow and complicated. Nathan Reynolds, who owns Illinois-based Chicagoland Mortgage Services, now runs seminars to help his clients stay in the houses they bought with his help. He once issued 100 loans a month, and now considers 15 an achievement.
"I'm a Christian man and I feel a great sense of responsibility for those loans we helped with that did nothing but help a big bank," he said. "I know these people, I shook their hands when the deals closed. We all ran into trouble because we used our houses as piggy banks, and we need to do what we can to make it right again."