More than one in seven home buyers with sub-prime loans in the United States failed to keep up with mortgage payments in the second quarter, in a sign of growing distress in the housing market.
More than 619,000 homeowners — or 1.4 per cent of all those with mortgages — face the prospect of repossession, up from 1.28 per cent in the first quarter, according to estimates by the Mortgage Bankers' Association (MBA).
Total delinquencies rose to their highest level since 2002 — by 0.28 percentage points to 5.12 per cent of all mortgages, reported the Financial Times (FT).
The study was followed by comments from two members of the Federal Reserve Board that the turmoil in financial markets stemming from the weakening US housing market could hurt the economy.
The data indicates an acceleration in the troubles in US mortgage markets, and covers the period before last month's credit squeeze raised the cost of borrowing.
Most of the rise in foreclosures came from growing numbers of seriously delinquent adjustable-rate sub-prime, and prime, mortgages.
Economists expect foreclosure rates to increase dramatically as sub-prime loans re-set to higher rates in the coming months, said the FT report.
The national delinquency rate for mortgage loans also rose to 5.12 per cent, up 0.28 per cent from the first quarter and 0.73 per cent from a year ago. The large increases were down to sub-prime loans given to high-risk borrowers, which are mostly concentrated in just a few states.
"What continues to drive the national numbers is what is happening in the states of California, Florida, Nevada and Arizona," said Mr Doug Duncan, the MBA's chief economist. California is the nation's largest mortgage market.
He added that falling house prices caused by excess supply in the market and weak economic conditions in those states, were making it difficult to refinance the sub-prime loans and intensifying problems.
Meanwhile, Mr William Poole, president of the St Louis Federal Reserve, said there was an increased chance of recession due to the volatility of the markets.
"There is reason to be concerned about how much this market turbulence is affecting economy," he said. — Agencies
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