Tuesday September 4, 7:08 pm Eastern Time UPDATE1-More US homeowners late in paying mortgage loans (UPDATE: adds economist quotes, byline)

By Aleksandrs Rozens

NEW YORK, Sept 4 (Reuters) - Late payments on mortgage loans insured by the U.S. government's Federal Housing Administration rose to record highs in this year's second quarter as job cuts and a slowing economy hurt homeowners. The pickup in late payments was evident in all mortgage loans and the credit situation for homeowners is expected to worsen.

``I anticipate delinquencies will keep going on an upward trend for the next several quarters at least,'' said Douglas Duncan, chief economist at the Mortgage Bankers Association of America (MBA), an industry trade group that reported the trend in higher delinquencies on Tuesday. ``They'll continue to go up because unemployment keeps going up,'' he said.

Late payments on the entire universe of U.S. single-family home loans, or delinquencies, rose just over one-quarter of a percent, or 26 basis points, to 4.63 percent in the second quarter of 2001 from the first quarter, according to the MBA.

But, FHA loan delinquencies rose 79 basis points to 10.79 percent, while delinquencies for loans guaranteed by the Veteran's Administration (VA) rose 41 basis points to 7.63 percent, according to the MBA.

The FHA program, favored by many first-time home buyers, is run by the U.S. Department of Housing and Urban Development while the VA program is run by the Department of Veterans Affairs.

FHA loan delinquencies were last this high in the fourth quarter of 2000, and delinquencies for all loan products peaked at 6.07 percent in the first quarter of 1985, Duncan said.

In the fourth quarter of 2000, loan delinquencies jumped in the wake of higher energy prices, recalled Duncan.

The FHA program insures seven million loans, worth $600 billion, while the conventional home loan market, including loans guaranteed by U.S. government agencies Freddie Mac and Fannie Mae, total $2.8 trillion.

If the U.S. unemployment rate, currently at 4.5 percent, rises to 5 percent or above in coming months, then the delinquency rate for all home loans could rise above 5 percent, according to the MBA's chief economist. ``There is a two quarter lag behind the unemployment number,'' Duncan said.

And while a slowing U.S. economy has hurt some homeowners, other factors contribute to the rise in late payments for FHA loans, among them demographics and aging in homes that brings about a need for repairs.

``After you have been in a house, some things go wrong. You have major repairs,'' Duncan said. ``If you have a baby, you have day care expenses and one of you is working half of the time. There is a lifestyle change for some households.''

So, these extra expenses can bring about a greater propensity for late payments, said Duncan.

Meanwhile, the MBA said, the percentage of loans on which foreclosure was started during the second quarter rose five basis points to 0.36 percent, while the percentage of loans in the foreclosure process at the end of the quarter rose one basis point to 0.91 percent.

Conventional loans guaranteed by Freddie Mac and Fannie Mae saw delinquency rates rise 16 basis points to 2.93 percent

-- Guy Daley (guydaley1@netzero.net), September 04, 2001

Answers

What a conflict in portent for the future. It's ridiculous. On one hand we have house prices skyrocketing, and, on the other, record house payment delinquencies. How do you reconcile the two?

-- Uncle Fred (dogboy45@bigfoot.com), September 05, 2001.