Foreclosures soar 76% to record 1.35 million

NEW YORK (CNNMoney.com) -- A record 1.35 million homes were in foreclosure in the third quarter, driving the foreclosure rate up to 2.97%, the Mortgage Bankers Association said Friday.

That's a 76% increase from a year ago, according to the group's National Delinquency Survey.

At the same time, the number of homeowners falling behind on their mortgages rose to a record 6.99%, up from 5.59% a year ago, the association said. Many of those troubled borrowers are in California and Florida, which have among the highest delinquency rates in the nation.

The weakened economy and mounting job losses are expected to push that number even higher. And that will likely affect homeowners with prime, fixed-rate mortgages, which make up the vast majority of loans and have so far held up fairly well. Until now, much of the housing market's problems were concentrated in the subprime, adjustable-rate market, where homeowners with weak financial backgrounds got loans they ultimately couldn't afford.

"We have not gone into past recessions with the housing market as weak as it is now, so it is likely that a much higher percentage of delinquencies caused by job losses will go to foreclosure than we have seen in the past," said Jay Brinkmann, MBA's chief economist.

Unemployment soared to 6.7% as payrolls shrunk 533,000 in November, the Bureau of Labor Statistics said Friday. It was the largest monthly job loss in 34 years, and brought the year's total job losses to 1.9 million.

The number of homes going into foreclosure in 2008 is on track to hit 2.2 million, Brinkmann said.

The percentage of homes starting the foreclosure process in the third quarter actually inched down to 1.07% from 1.08% a year ago. But that's due at least in part to the fact that some states have instituted foreclosure moratoriums in order to give troubled borrowers a chance to get the loans modified.

But this is just delaying the inevitable for many, and could push up the foreclosure rate even more in coming quarters. For instance, Massachusetts, which instituted such a moratorium earlier this year, saw a large drop in foreclosures during its moratorium and then a big increase the following quarter, Brinkmann said.

But the foreclosure moratoriums and foreclosure prevention efforts have pushed up the number of loans 90 days or more late to their highest level ever. But this might not be as dire as it sounds, Brinkmann said. Many of the one million homeowners who fall into this category may never go into foreclosure if a more affordable mortgage can be arranged.

Another hint of good news in Friday's report is that the number of borrowers one month behind in payments remained fairly steady at 3.39%. This remains below levels seen during the last recession in 2001, Brinkmann said.

As for 2009, it all depends on whether the economy recovers, he said.

"Absent a recession, the 2009 number would likely have fallen by several hundred thousand but the effects of job losses and general economic deterioration make the 2009 outlook worse, particularly if mortgage problems become more widespread," Brinkmann said.

The report is based on 45.5 million mortgages, about 85% of the total number of first mortgages nationwide.