Delinquencies of U.S. mortgages in the first quarter shot up to levels not seen in nearly four decades, snaring a wider range of borrowers and suggesting that the U.S. housing market remains under severe stress.

News of the record amount of mortgage loan delinquencies and foreclosures unsettled equity investors, sending share prices lower. The Dow Jones Industrial Average was off 33.53 points at 8,266.49 soon after release of an industry report mid-morning Thursday.

The Mortgage Bankers Association (MBA) said foreclosure actions were initiated on 1.37% of first-lien mortgages in the first quarter and 9.12% of all loans outstanding were delinquent.
The MBA said the 9.12% rate is the highest in its records going back to 1972.

Delinquencies are up 124 basis points from the fourth quarter of 2008 and they are up 277 basis points from year-ago levels.

"This is very consistent with the NAR [National Association of Realtors] report we saw yesterday for existing homes. Forty-five percent of those sales were distressed property sales," says Lindsey Piegza, economist at FTN Financial. "Homeowners are still struggling to make payments on homes they cannot afford."

On Wednesday, NAR said existing home sales rose 2.9% in April to a seasonally adjusted annual rate of 4.68 million units.

The MBA's delinquency rate includes loans at least one payment past due, but does not include loans in the process of foreclosure.

Loans in the foreclosure process at the end of the fourth quarter made up 3.85% of all loans outstanding. That is up 55 basis points from the fourth quarter of 2008 and up 138 basis points from a year ago. The foreclosure inventory percentage and the quarter-to-quarter increase are record highs.

The MBA said problems with mortgages now include loans to credit-worthy consumers and they are not relegated to just subprime home loans.

“What has changed is the shifting of the problem somewhat away from the subprime and option ARM/Alt-A loans to the prime fixed rate loans,” MBA chief economist Jay Brinkmann said in a press release. “The foreclosure rate on prime fixed-rate loans has doubled in the last year, and, for the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures.”

Most of the problem mortgages are concentrated in California, Florida, Arizona and Nevada, according to the industry trade group, which examined 45 million loans for one- to four-unit residential properties.

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