Headline: More Falling Behind on Mortgage Payments

Source: New York Times, 12 June 2001

URL: http://www.nytimes.com/2001/06/12/business/12HOME.html

With energy costs and unemployment rising, the number of Americans who are behind on their mortgage payments has increased sharply in the last year.

The increase is particularly worrisome, housing analysts say, because it suggests that many of the new homeowners, who were part of a surge in house-buying during the last decade, may not be able to afford their current mortgages during slow economic times. Newly liberal lending standards, which often require only a small down payment, have in recent years allowed many people to buy their first house.

Over the last year, however, a growing minority of those homeowners have struggled to pay their bills.

In a popular government-insured program to help people buy moderately priced homes, the percentage of homeowners whose loan payments are more than 30 days late exceeded 10 percent for the first time ever at the end of last year, according to a survey by the Mortgage Bankers Association of America. Even during the recessions of the early 1990's and the early 1980's, the rate did not exceed 8 percent. Over all, about 400,000 more families were at least 30 days late on their mortgages in the early months of this year than at the beginning of 2000.

Those statistics do not include "subprime" mortgages — which generally go to people with low income or a spotty credit history — and delinquencies among those homeowners have risen in the last 18 months, too, according to the Mortgage Information Corporation in San Francisco. Despite the wider availability of mortgages in recent years, subprime loans remain one of the only options for many minorities, studies have shown.

Foreclosure rates, which typically lag delinquency rates, remain low, but have increased slightly this year.

For the people who have been unable to pay their bills, the last few months have been a terrifying time, they said, in which they have begun to feel unsettled in the one place where they would expect to find solace: their home. "Never did I imagine I would be in a situation like this," said Alice F. Camp, who lives with her husband and three children in a two-story house — the first she has owned — near Atlanta.

Last year, Mrs. Camp lost her job as a nurse shortly before learning she was pregnant, and the Camps quickly fell behind on their monthly payments of about $750. Their bank has threatened foreclosure twice this year. "I've always been able to pay my bills, but I've just been kind of helpless," she said. "It's just been devastating."

The mortgage problems underscore one main reason many policy makers and economists are so concerned about whether the United States will enter a recession this year. In recent years, Americans have built up hundreds of billions of dollars of debt, and should the current slowdown worsen, many people could find themselves unable to pay their credit card, auto loan and mortgage bills, analysts say. Even those better positioned to ride out a downturn may be forced to cut back on spending to pay down debt, further weakening the economy.

The expansion of mortgage lending has happened as the federal government has pressed banks to make more loans available in poorer communities. On their own, bankers have also begun using sophisticated computer programs to identify new groups of potential homebuyers.

Between 1995 and the start of this year, the home ownership rate rose to a record 67.5 percent from 64.7 percent, according to the Department of Housing and Urban Development. Between 1982 and 1995, it had fallen by a tenth of a percentage point. But now, with companies eliminating jobs and overtime hours and with the costs of gasoline, heating and air- conditioning up sharply, many people who only recently grabbed onto the ladder to the middle class are struggling to hang on.

"This is the first time these loans have been tested," said Mark Zandi, an economist at Economy.com, a forecasting firm in West Chester, Pa. "The pace at which things have eroded reveals severe stress."

The level of delinquencies among the mortgages insured by the Federal Housing Administration is "outrageous," added Mark P. Vitner, an economist at First Union in Charlotte, N.C. Mr. Vitner said that banks would probably become stricter about lending if it remained as high as 10 percent. "It is a very disturbing trend," he said.

Mortgage delinquency is especially high, and has risen especially fast, in the Southeast, home to a large concentration of manufacturing companies, which have cut tens of thousands of jobs since last summer. In addition, almost 50 percent of all new homes built in the United States since January 2000 have been constructed in the region, defined broadly as stretching from Maryland to Florida to Texas, according to First Union.

In DeKalb County, Ga., where the Camps live, the population surged in the 1990's, and upturned red dirt and billboards advertising new houses remain a common sight. "In every nook and cranny, they're building houses," said Jimmy Bennett, the executive director of the DeKalb/ Fulton Housing Counseling Center, a nonprofit group that helps new-home buyers and people with mortgage problems.

Mrs. Camp and her children moved into their home in Stone Mountain in 1996 and quickly made it theirs. They threw a small party to celebrate. Since then, she has often invited friends and family over for corn pudding or baked spaghetti, talking to them while she cooked and they sat in the family room next to the kitchen. Her new husband later refinished the kitchen cabinets, vanquishing the "ugly brown," she said, and replacing it with a more textured look.

Beyond all the details, having the house has just felt good. "It's a sense of owning something, a sense of belonging, a sense that your money is going into something rather than going out and you never seeing it again," Mrs. Camp said. "It's having something you looked for with your children and you grow in. It's a place of comfort."

That comfort began to seem fleeting last year, when she became sick with complications from high blood pressure and her boss then fired her without giving her a reason, she said. When she lost her job, she was earning $54,000 a year as the director of nursing at a nearby county jail. Soon after, she found out that she was pregnant, and the bills began to pile up. Friends, relatives and her church have helped the Camps out, and the family made a $3,500 payment in March, the last time they received a foreclosure notice.

Although they remain $1,800 behind on their mortgage, Mrs. Camp said she was hopeful. The arrival of summer should help her husband, a carpenter, get additional work. And with her son, who was born prematurely, getting stronger, she hopes she will be able to look for work again soon.

So far this year, Atlanta newspapers have printed an average of 384 foreclosure notices for DeKalb County each month, up from 300 last year, according to the county's Human and Community Development Department.

Across the country, a drop in energy costs helped the delinquency rate for Federal Housing Administration loans fall slightly, to a seasonally adjusted 10 percent in the first quarter, from 10.2 percent in the fourth quarter, the Mortgage Bankers Association said yesterday. But since the first quarter of 2000 the rate has climbed from 8.4 percent. The delinquency rate includes all mortgages that are at least 30 days' past due.

Officials at the Department of Housing and Urban Development, which administers the F.H.A. loans, said some of the mortgage problems could be expected because delinquencies usually rose between three and seven years after loans were made. They also said the department was working with families to design payment plans that would prevent foreclosures.

The delinquency rate on conventional first mortgages was 4.4 percent last quarter, up from 3.7 percent a year earlier.

Despite the problems, few people question whether the increase in home ownership over the last decade has been worthwhile. With more people owning homes — 69.8 million last year, compared with 59 million in 1990, according to the Fannie Mae Foundation — more people have a reason to work to improve their neighborhood, housing analysts say. And a house is the only significant long-term investment that many low- and moderate-income people have, said Chris H. Morris, the director of DeKalb's community development department.

But housing analysts are starting to ask whether the boom in home ownership can survive the current downturn.

Mildred Akins decided she wanted to move out of her Atlanta apartment and buy a house about two years ago, when her landlord failed to repair a hole in her ceiling. She had little money for a down payment, but by enrolling in a counseling program for new-home buyers, she received a $5,000 grant. In December 1999, she and her two grandchildren moved in to a single- level beige brick house on the west side of the city. "We absolutely love it," Ms. Akins said. "I've got nice big open windows where the light comes in beautifully. We've got hardwood floors. We've got a fireplace." "It's like a sanctuary," she added.

It has been in jeopardy, however, since Ms. Akins's secretarial job at a bail bonding company was eliminated. Failing to find a professional job despite her college degree and 20 years as a teacher, she earns $9 an hour as a customer service representative at a Publix supermarket, she said. "This is something to keep me from going down the tubes," she said.

But it may not be enough. "By the time they take out the taxes, there's not a lot to take home," she said. Unless things change soon, she added, "with two growing children and clothing and food, I will not be able to cover the mortgage."

-- Andre Weltman (aweltman@state.pa.us), June 12, 2001