Illinois foreclosure rates exceed national norm

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While the rate of Illinois homeowners behind on their mortgage payments fell this year, the share of those borrowers beginning the foreclosure process spiked to 5.85 percent – over a full point above the record-high national rate.

More than 10 percent of American homeowners had missed a mortgage payment in the first quarter ended March 31, the Mortgage Bankers Association said Wednesday, a 6 percent increase from the previous quarter and a more than 10 percent jump from the year-earlier period.

These figures are seasonally adjusted, taking into account the heating bills and holiday shopping that normally push delinquencies higher in winter. The non-seasonally adjusted U.S. delinquency rate fell during the January through March period – as it usually does – prompting a spate of uncertainty over whether the housing crisis has abated.

While the foreclosure crisis appears to have stabilized, said Jay Brinkmann, MBA’s chief economist, lingering debt woes in Europe – which have pushed the value of the euro downward – mean a more expensive U.S. dollar and slower growth in U.S. exports. And a lagging recovery means sustained pain for homeowners, even if foreclosures have slowed.

“A bad situation that’s not getting worse is still bad,” Brinkmann said.

And while sub-prime mortgages – riskier loans to borrowers with lower credit scores – may have precipitated the previous decade’s real estate bubble and subsequent meltdown, a growing portion of failing loans are coming from prime borrowers.

Fixed-rate prime loans, which comprise nearly two-thirds of all U.S. mortgages outstanding, make up 36.7 percent of foreclosures started, an increase of nearly 27 percent from last year. In Illinois, more than 8 percent of the state’s 1.3 million prime loans were 90 days or more past due and in foreclosure.

At 1.4 percent, Illinois ranks sixth in the country in terms of the rate of increase in foreclosure starts, 0.17 percentage point higher than the national average.

And with a growing pool of delinquent loans, the efficacy of government sponsored modification programs remains unclear.

“With this whole mortgage and housing meltdown, we almost had to grow a new set of thumbs,” Brinkmann said.

The government’s nonpareil intervention to stabilize the housing market – from a sluggish $75 billion HAMP modification program to the Federal Reserve’s purchase of nearly $1.25 trillion in mortgage-backed securities – has yet to dramatically reduce the upswing in shadow inventory which could push home values even lower.

“It’s kind of like having a bucket with a hole in it,” Brinkmann said, “with water coming in from the top.”

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