Foreclosures expected to peak at end of 2010

The housing market continues to threaten signs of an economic recovery, with new data released on Thursday showing an all-time high of Americans falling behind on loan payments and the rate of home foreclosures unlikely to peak until late in 2010.

Lawmakers have been working for more than a year to reduce foreclosures and steady the housing market. But new efforts by the Obama administration to spur loan modifications are still getting under way, with most observers expecting foreclosure rates to continue rising.

{mosads}Jay Brinkmann, chief economist at the Mortgage Bankers Association (MBA), said on Thursday that he expects the foreclosure problem to crest at the “end of next year” if unemployment numbers peak in the middle of 2010.

“Our forecast is that jobless rates will peak in the middle of next year, and we’ll expect delinquencies to peak then and foreclosures to peak after,” Brinkmann said.

The share of loans that are one or more payment overdue or are in the process of foreclosure rose to 13.2 percent of all loans in the country, according to data released by the MBA. That is an all-time high in the association’s survey. The percentage of loans 90 days or more past due and those in foreclosure also reached record highs.

The housing market and lax lending standards in the subprime market were a major factor in sparking the financial crisis. The data released on Thursday indicates, however, that overly aggressive loan practices are now a smaller driver of foreclosures than problems in the broader economy such as rising unemployment.

The recession has claimed more than 6 million jobs since it began in December 2007. And while private estimates show the economy climbing out of recession later this year with growth turning positive, job losses will likely continue to mount.

Brinkmann said there has been a “dramatic shift” away from subprime loans driving the increase in delinquencies to problems in the market for more conventional prime loans. He said that the number of foreclosures started on subprime loans fell in 43 states, while the rate for prime fixed loans increased in 41 states.