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Late house payments aren't widespread -- yet

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The MBA's Duncan says the passage of time adds another risk factor. People are most likely to default on their mortgages three to five years after getting the loan. It's now about three-and-a-half years after the beginning of the refi boom, and Duncan expects delinquencies and foreclosures to rise modestly over the next few years.

Appreciation holds problems at bay
Why only a modest rise? Because in many parts of the country, home prices have risen dramatically. In the last five years, average home values have more than doubled in six states, according to the Office of Federal Housing Enterprise Oversight, and the national average shows a 57 percent gain over that time. Price appreciation gives strapped homeowners the financial room to fix up their homes, sell them, retire their mortgages, pay real estate commissions and move.

On the other hand, when house prices are static, some people can't afford to sell their homes, because the proceeds from the sale aren't enough to pay off the mortgage and cover commissions and moving expenses. The states with the most homes in foreclosure are cursed with slow price appreciation, as well as the loss of higher-paying manufacturing jobs. That list includes Michigan, Ohio and Indiana, the three states with the slowest price appreciation (under 4.25 percent) in the last year, according to the OFHEO.

Finally, any report about mortgage delinquencies and foreclosures has to take Hurricane Katrina into account. Picture again that town with 10,000 houses -- that microcosm of the whole country. Nine or 10 of the homeowners are behind on their payments because of Katrina. Some await insurance settlements; some are jobless. By Duncan's reckoning, those people would be current on their mortgages now if Katrina hadn't hit, and the national delinquency rate would have been 4.31 percent in the first quarter of this year -- exactly the same rate as the first quarter of 2005.

And if Katrina hadn't happened, the foreclosure rate would be higher -- 0.99 percent instead of 0.98 percent -- because forbearance programs protect homeowners who were hammered by the hurricane. Eventually, some of those people will lose what's left of their homes to foreclosure.

The hurricane's effect on homeowners can be seen when you compare delinquency rates in Louisiana and Mississippi with their northern neighbors. In the first quarter of 2006, the delinquency rate in Louisiana was 13.73 percent, and in Arkansas it was 4.37 percent. In Mississippi, the delinquency rate was 12.86 percent, compared to 5.67 percent in Tennessee.

To see the percentage of delinquencies in your state, see "State-by-state mortgage delinquencies."'s corrections policy -- Posted: June 22, 2006
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