Business groups and bankers are spooked by the approach of October, when a large number of adjustable-rate mortgages held by homeowners are expected to reset to higher rates with uncertain consequences for the economy.
In July, Connecticut already had the 11th-worst foreclosure rate in the nation at 1 in every 672 homes under foreclosure, according to RealtyTrac Inc. of Irvine, Calif. Nevada had the worst rate in the nation, while Massachusetts fared worst in the Northeast.
Updated national figures released last week show that home foreclosures jumped 36 percent nationally between July and August, and were more than double the number a year ago.
RealtyTrac blamed the increase on a large number of adjustable-rate mortgages (ARMs) that have reset to higher rates in the past six weeks; about $50 billion in hybrid ARMs nationally are expected to reset in October.
Some 63,000 Connecticut homeowners hold subprime mortgages, according to the Mortgage Bankers Association. In April, Gov. M. Jodi Rell convened a task force of banking and mortgage experts to make recommendations on the crisis; as of mid-September, the group had yet to publicize its findings.
Subprime mortgages represented just 6.4 percent of the Stamford and Norwalk market, said Todd Martin, a local economist who cites statistics from First American LoanPerformance and from the U.S. Census Bureau. That is below Danbury”™s rate of 9.1 percent and Bridgeport”™s rate of 13.1 percent; Waterbury had the highest rate of sub-prime mortgages in the state at 17.6 percent, above the U.S. rate at 14 percent.
Still, Connecticut executives are concerned about the possible spillover effect of the national subprime mortgage crisis and whether it could affect their ability to get financing in the future, according to a survey released last week by the Connecticut Business & Industry Assoc. (CBIA) and TD Banknorth.
Some 30 percent of respondents rated current credit conditions in Connecticut as either good or excellent, down from 37 percent in the second quarter and 42 percent in the first quarter. Another 21 percent of respondents rated conditions as either poor or fair, higher than the 16 percent of respondents who said so in the second quarter.
It marked the lowest level for expectations on future credit availability since CBIA commenced the quarterly survey in 2004.
“While this is the second quarter in a row that the overall credit availability index reading has dipped below the crucial level of 50, this ongoing corrosion of confidence is driven mainly by speculation over future conditions, not current conditions, which are holding up and have yet to see meaningful deterioration,” said Donald Klepper-Smith, chief economist and director of research for DataCore Partners, which manages the survey.
The delinquency rate nationally for mortgage loans was 5.1 percent of all loans outstanding in the second quarter of 2007, from 4.8 percent in the first quarter and from 4.39 percent in the second quarter of 2006.
Both RealtyTrac”™s and the Mortgage Bankers Association”™s national figures were skewed by Florida, Michigan, Ohio, California and other states outside the Northeast. Ohio”™s mortgage delinquency and foreclosure rate is twice the national average, though leveling off, while Michigan”™s situation is worsening with a high level of foreclosures getting under way in the past two quarters. California has been particularly hard hit by ARMs that rocket upward as interest rates increase.
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In several states, mortgages have been particularly high in cases where investors have bought houses in areas where real estate prices have been escalating rapidly, renting them rather than living in them.
ARMs become difficult to refinance as home prices drop, especially in cases where a homeowner puts down little in the way of an initial down payment.
The national delinquency rate calculated by the Mortgage Bankers Association does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process in the second quarter was 1.4 percent, up from 1.3 percent in the first quarter and from 1.0 percent the year previous.
The rate of loans entering the foreclosure process was nearly 0.7 percent, breaking the previous record for foreclosure starts set last quarter.
One in four mortgage brokers say they are being affected by the subprime crisis, according to a poll this month by the Stamford-based GE Money division of General Electric Co. Still, just 1 percent of those polled said they would no longer package subprime loans, with the majority saying they would instead better vet lenders in seeking out more experienced banks.
Still, a $1.8 billion GE Capital deal to purchase PHH Corp. was threatened last week. GE wants to retain PHH”™s vehicle-fleet financing business and sell off PHH”™s larger mortgage unit to Blackstone Group, but the latter company notified GE that it may back out of the deal.
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