Figures suggest debt burden isn't onerous

By Kenneth R. Harney
September 26, 2005

WASHINGTON - You've probably seen the dire news reports:

U.S. homeowners are becoming debt junkies, piling up record mortgage amounts,credit card bills, home equity credit lines. They are putting down less whenthey buy and borrowing a lot more.

Families in high-cost real estate markets are stretching their household budgetsto the breaking point in order to buy even a modest home. Some families are devoting 40 percent to 50 percent of their monthly income just to hang on totheir high-priced houses.

With interest rates virtually certain to rise from 40-year lows, debt pressureson borrowers can only get worse, pushing some families to the brink.

Given all that gloom and doom, you would think that homeowners' growingfinancial challenges would be visible in their payment performances mortgages.

But the reverse is true: Late payments on home mortgages were actually lower in mid-2005 than they were at the same time the year before -- 4.3 percent of all homeowners were at least slightly behind on their payments this year vs. 4.6 percent last year. Foreclosure rates are low and continue to fall. In mid-2005, 1 percent of all outstanding mortgages were in foreclosure, compared with 1.2 percent in mid-2004.

These figures come from the latest quarterly survey of nearly 40 million home loans -- in 50 states, plus the District of Columbia and Puerto Rico -- by the Mortgage Bankers Association of America. The second-quarter 2005 study also documents U.S. homeowners' significant differences in propensities to fall behind on their mortgages, based on where they live.

You might assume, for example, that homeowners in the states with the highest prices, lowest affordability and wildest appreciation rates would show the highest incidences of late payments. But that's just not so.

The lowest late payment rate in the country: Hawaii, where home prices are stratospheric and last year's average appreciation rate was 25.9 percent, third highest in the country. Yet only 0.89 percent of outstanding home loans in Hawaii are even slightly in arrears.

The next lowest late-payment rate was in California (1.02 percent), followed by Virginia (1.32 percent). California's 25.2 percent average appreciation rate last year ranked it fourth in the country. Virginia real estate is less expensive than California and Hawaii, but it's still well above the national average. And its 21 percent appreciation rate last year ranked it the eighth fastest-inflating state, according to the Office of Federal Housing Enterprise Oversight.

The highest rates of late payments, by contrast, turn out to be in states with relatively low housing costs, below-average appreciation rates and slow economic growth. Mississippi homeowners had the highest delinquency rate among the 50 states at mid-year (8.5 percent), followed by Louisiana (6.7percent), Indiana (6.66 percent), Tennessee (6.32 percent), Texas (6.31 percent) and Ohio (6.13percent). All of these states have moderate- to below-average housing costs andranked among the slowest-appreciating markets in the country last year,according to federal statistical data.

Where are foreclosure rates the highest? Nationwide, the rate was 1 percent at midyear. But several Midwestern states are experiencing foreclosures at two to three times that rate. Ohio had the highest incidence -- 3.3 percent of all
loans outstanding were in or beginning the foreclosure process. Next was Indiana (2.8 percent of all loans), Kentucky (1.9 percent) and Mississippi (1.7 percent).

The lowest rates of foreclosure in the country? You guessed it. Just 0.17 percent of California home loan borrowers faced that financial nightmare as of midyear, followed by Hawaii (0.23 percent), Virginia (0.29 percent), Arizona (0.35 percent) and New Hampshire and Vermont (both 0.36 percent).

Foreclosure rates in general are lower in 2005 than they have been in prior
decades in part because Fannie Mae, Freddie Mac, the Federal Housing Administration and most major lenders all now use sophisticated``loss-mitigation'' techniques to keep even the most seriously delinquent borrowers in their homes. The techniques include restructuring loan terms, deferring late balances to the end of the loan, and sometimes even lowering
interest rates.