Delinquencies on mortgage payments rising
David Leonhardt New York Times
Saturday, June 23, 2001
Faced with higher energy costs and increases in unemployment, more Americans
are behind on their mortgage payments and delinquency has risen sharply in the
past year.
Among the worst hit have been the millions of families who bought homes for the
first time in the 1990s as part of a much-celebrated growth in the nation's
homeownership rate. The increase in the delinquency rate is particularly
worrisome, housing analysts say, because it suggests many of the new
homeowners who benefited from newly liberal lending standards may not be able
to afford their current mortgages during slow economic times.
In a popular government-insured program to help people buy moderately priced
homes, the percentage of homeowners whose loans are more than 30 days late
exceeded 10 percent for the first time at the end of last year, according to a survey
by the Mortgage Bankers Association in Washington, D.C. Even during the
recessions of the early 1990s and the early 1980s, the rate did not exceed 8
percent.
Overall, about 400,000 more families were at least 30 days late on their mortgages
in the early months of this year, compared with the beginning of 2000.
In addition, thousands of other homeowners with "subprime" mortgages --
generally people with low income or a spotty credit history -- have begun missing
payments in the past six months, according to the Mortgage Information Corp. in
San Francisco. Despite the wider availability of mortgages in recent years,
subprime loans remain one of the only options in some urban neighborhoods home
to large numbers of minorities, recent studies have shown.
Foreclosure rates, which typically lag delinquency rates by many months, also
have risen slightly this year as the percentage of homeowners more than 90 days
behind on their payments has continued to rise.
For the people who have been unable to pay their bills, the past few months have
been a terrifying time, they said, in which they have begun to feel unsettled in the
one place where they would expect to find solace: their home.
"Never did I imagine I would be in a situation like this," said Alice Camp, who
lives with her husband and three children in a two-story house -- the first she has
owned -- near Atlanta. Last year, Camp lost her job as a nurse shortly before
learning she was pregnant, and the Camps quickly fell behind on their monthly
payments of about $750. Their bank has threatened foreclosure twice this year.
"I've always been able to pay my bills, but I've just been kind of helpless," she
said. "It's just been devastating."
Perilous positions
The mortgage problems underscore one of the main reasons why many
policymakers and economists are so concerned about whether the United States
will enter a recession this year. In recent years, Americans have built up hundreds
of billions of dollars of debt, and should the current economic slowdown worsen,
many people could find themselves unable to pay their credit-card, auto-loan and
mortgage bills, analysts say. And even those better positioned to ride out a longer
downturn may be forced to cut back on spending to pay down debt, further
weakening the economy.
During the past decade, lenders have begun offering many mortgages that require
almost no down payment but that include relatively high monthly payments as a
result. In part, they have responded to government pressure to make loans
available in poorer communities and to increase the number of people able to
afford a house. And in part, bankers have simply realized they could use more
sophisticated computer programs to screen mortgage applications and identify new
groups of potential home buyers in the process.
Between 1995 and the start of this year, the homeownership rate rose to a record
67.5 percent from 64.7 percent, according to the Department of Housing and
Urban Development. Between 1982 and 1995, it had actually fallen by a 10th of a
percentage point.
But now, with companies eliminating jobs and overtime hours, and with the cost
of gasoline, heating and air conditioning up sharply, many people who only
recently grabbed onto the ladder to the middle class are struggling to hang on.
"This is the first time these loans have been tested," said Mark Zandi, the chief
economist at Economy.com, a forecasting firm in West Chester, Pa. "The pace at
which things have eroded reveals severe stress."
Mark Vitner, an economist at First Union in Charlotte, N.C., said the level of
delinquencies among the mortgages insured by the Federal Housing Administration
is "outrageous." Vitner said that banks probably would become stricter about
lending if it remained as high as 10 percent. "It is a very disturbing trend," he said.
Mortgage delinquency is especially high -- and has risen especially fast -- in the
Southeast, home to a large concentration of manufacturing companies, which have
cut tens of thousands of jobs since last summer.
In addition, almost 50 percent of all new homes built in the United States since
January 2000 have been constructed in the region, defined broadly as stretching
from Maryland to Florida to Texas, according to First Union.
In DeKalb County, Ga., upturned red Georgia clay and billboards advertising new
houses remain a common sight. "Every nook and cranny, they're building houses,"
said Jimmy Bennett, the executive director of the DeKalb/
Fulton Housing Counseling Center, a nonprofit group that helps new home buyers
and people with mortgage problems.
Quick path to quagmire
Camp and her children moved into their home in Stone Mountain in 1995. They
threw a small party to celebrate. Since then, she often has invited friends and
family over for corn pudding or baked spaghetti, talking to them while she cooked
and they sat in the family room next to the kitchen. Her new husband later
refinished the kitchen cabinets, vanquishing the "ugly brown," she said, and
replacing it with a more textured look.
Beyond all the details, having the house has just felt good. "It's a sense of owning
something, a sense of belonging, a sense that your money is going into something
rather than going out and you never seeing it again," Camp said. "It's having
something you looked for with your children and you grow in. It's a place of
comfort."
That comfort began to seem fleeting last year, when she became sick with
complications from high-blood pressure and her boss then fired her without giving
her a reason, she said. Officially, she worked for an employment agency, although
she had spent the previous 10 years as a nurse at a jail in nearby Fulton County.
When she lost her job, she was earning $54,000 a year as the director of nursing.
Soon after, she found out that she was pregnant, and the bills began to pile up.
Friends, relatives and her church have helped out the Camps, and the family made
a $3,500 payment in March, the last time they received a foreclosure notice.
Although they remain $1,800 behind on their $750-a-month mortgage, Camp said
she was hopeful. The arrival of the summer should help her husband, a carpenter,
get additional work. And with her newborn son, who was born prematurely,
getting stronger, she hopes she will be able to look for work again soon.
So far this year, Atlanta newspapers have printed an average of 384 foreclosure
notices for DeKalb County each month, up from 300 last year, according to the
county's Human and Community Development Department.
Across the country, a drop in energy costs helped the delinquency rate for Federal
Housing Administration loans fall slightly to a seasonally adjusted 10 percent in the
first quarter, from 10.2 percent in the fourth quarter, the Mortgage Bankers
Association said. The rate was 8.4 percent during the first quarter of 2000.
The delinquency rate includes all mortgages that are at least 30 days past due. The
percentage of FHA loans that were at least 90 days overdue continued to rise in
the first quarter.
The delinquency rate on conventional first mortgages was 4.4 percent last quarter,
up from 3.7 percent a year earlier.
Fragile trend
Despite the problems, few people question whether the increase in
homeownership over the past decade has been worthwhile. With more people
owning their homes -- 69.8 million last year, compared to 59 million in 1990,
according to the Fannie Mae Foundation -- more people have a reason to work to
improve their neighborhood, housing analysts say. And a house is the only
significant long-term investment that many low-and moderate-income people have,
said Chris Morris, the director of DeKalb's community development department.
But housing analysts are starting to ask whether the homeownership boom can
survive the current downturn.
Mildred Akins decided she wanted to move out of her Atlanta apartment and buy
a house about two years ago, when her landlord failed to repair a hole in her
ceiling. She had little money for a down payment, but by enrolling in a counseling
program for new home buyers, she received a $5,000 grant.
In December 1999, she and her two grandchildren moved in to a single-level brick
house on the west side of the city.
"We absolutely love it," Akins said. "I've got nice big open windows where the
light comes in beautifully. We've got hardwood floors. We've got a fireplace."
"It's a like a sanctuary," she added.
It has been in jeopardy, however, since Akins' secretarial job at a bail bonding
company was eliminated. Failing to find a professional job despite her college
degree and 20 years' experience as a teacher, she earns $9 an hour as a customer
service representative at a supermarket, she said.
"This is something to keep me from going down the tubes," she said.
But it may not be enough. "By the time they take out the taxes, there's not a lot to
take home," she added. Unless things change soon, "with two growing children
and clothing and food," she said, "I will not be able to cover the mortgage."
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