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Foreclosures In Connecticut, Nation At Record Rate

By KENNETH R. GOSSELIN | Courant Staff Writer

September 06, 2008

As the subprime lending crisis continues to unfold, the rate of foreclosures and seriously delinquent home loans has reached its highest level on record for Connecticut and the nation as a whole.

A report Friday from the Mortgage Bankers Association depicted a deepening deterioration in borrowers' ability to make their monthly mortgage payments. As of June 30, more than 2 million home mortgages were either in foreclosure or 90 days past due — 4.5 percent of the total.

In Connecticut, the figure was 16,560, or 3.1 percent of all mortgages — nearly double the rate in the spring of 2007.

Connecticut remains in far better shape than many other states, including Massachusetts and Rhode Island.

On a day when another report showed that the nation's jobless rate had leaped to 6.1 percent and that employers had slashed 600,000 jobs this year, economists warned that job losses could push more borrowers into default and foreclosure. Even if layoffs don't gain speed, many homeowners, including thousands in Connecticut, face rising payments on adjustable-rate mortgages that could put them in foreclosure.

So far, the rise in delinquencies and foreclosures has been fueled by the defaults on subprime loans, many approved for borrowers who could not afford them over the long haul. Those loans often rose to a sharply higher rate after a period of low interest.

If job losses deepen in Connecticut, it is likely that foreclosure troubles will spread beyond borrowers with spotty credit to those with solid credit histories who took on too much debt, said Donald L. Klepper-Smith, an economist at DataCore Partners LLC in New Haven.

"That's the thing we have to watch right now," Klepper-Smith said.

Economists predict that Connecticut's home values will not move up on average until next year, although some pockets remain strong. That means that homeowners might not be able to refinance to gain breathing room, as they did during the price run-up from 2002 to 2006.

The Connecticut Department of Banking said Friday that its foreclosure hot line had logged 5,234 calls since it was started a year ago. A spokesman said that the hot line now averages about 40 calls a day, double the number reported by the department in June.

More callers are unemployed and more are in foreclosure, not just behind in their payments.

And foreclosures are a concern not just for those who face the prospect of losing their homes. A foreclosure can shave as much as $5,000 off the value of surrounding properties almost immediately, housing advocates say.

In Connecticut, the housing slowdown is now in its third year. Single-family house sales for the first six months of 2008 were at historic lows, and in June, the median sale price for a single-family house fell by double-digits for the second straight month, to $288,500, from $325,000 a year earlier, according to The Warren Group, which tracks housing trends in New England.

Hartford County has fared better than the state as a whole. Its median sale price fell 3 percent in June, to $248,000, from $257,000 a year earlier.

Nationally, seriously delinquent loans accounted for 4.5 percent of all home mortgages, with Florida having the most — a whopping 8.4 percent, or one in every 12 mortgages — and Wyoming had the least, at 1.1 percent.

The number of mortgages that are in foreclosure or delinquent by at least 30 days is far higher — 4 million in the United States, or 9 percent, and 39,000 in Connecticut, or 7 percent. Figures represent loans, not homeowners in trouble, because many homes have more than one mortgage.

The record rates for Connecticut and the United States date to 1979, the earliest year in which data are comparable, the Mortgage Bankers Association said.

Only eight states, led by Florida, California, Michigan and Nevada, are above the national average. But the size of those states is heavily influencing the national statistics.

"We're unlikely to see a national turnaround until we see improvement in the California and Florida markets," said Jay Brinkman, chief economist of the Mortgage Bankers Association.

Nationwide, the association's survey covers 45 million loans.