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By PATRICK BARTA Staff Reporter of THE WALL STREET JOURNAL
Mortgage delinquencies rose in the second quarter, a sign that Americans are still struggling to keep up with debt payments despite recent evidence of an improving economy.
The Mortgage Bankers Association of America said the percentage of borrowers who fell behind on their mortgage loans rose to a seasonally adjusted 4.62% in the second quarter, from 4.52% the previous quarter. The delinquency rate for loans insured by the Federal Housing Administration, a government program that helps first-time homebuyers, jumped to 12.59% from 11.65%.
Delinquencies had been declining over the past several quarters, which some analysts took as evidence that credit quality was finally stabilizing in the aftermath of the recent recession. But the latest numbers seem to suggest that problems with credit quality aren't over yet.
"I think mortgage credit quality is destined to erode measurably further, even with a better job market and economy," said Mark Zandi, the chief economist of Economy.com, a West Chester, Pa. consulting firm. He noted that home price appreciation is slowing, which could make it harder for families that are falling behind on their loans to sell their houses and get out of trouble. According to the Office of Federal Housing Enterprise Oversight, a federal housing agency, home prices rose just 0.78% during the three months through June, the slowest quarterly rate of appreciation since 1996.
Some economists have expressed concern that housing-related debt remains so high. A report released by the Federal Reserve on Tuesday showed that mortgage debt rose at a 14% rate during the second quarter, its fastest pace since the second quarter of 1987. Because home values rose less quickly than mortgage debt, homeowner equity fell to a record 54.3% of home values during the second quarter, from 55.3% during the first.
Economists watch mortgage-delinquency data closely because it gives them a good idea of the degree of stress families are feeling due to a weak economy. If credit quality continues to deteriorate, it could cause consumers to rein in spending, jeopardizing the fragile economic recovery. Higher delinquency levels also could hurt investors in the $6 trillion mortgage market, including Fannie Mae, Freddie Mac and other financial institutions that own home loans.
The report wasn't all bad news. The percentage of loans in the foreclosure process at the end of the second quarter fell to 1.12% from 1.2%. Foreclosure trends typically lag results in the delinquency data by one or two quarters, the MBA said, so the latest decline was expected.
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