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Floridians Missing Home Loan Payments: Inflationary Pressures, Adjustable Rates and Other Factors Are Contributing to a Rise in Foreclosures and Late Payments on Loans in Florida

Posted on: Tuesday, 20 June 2006, 06:00 CDT

By Monica Hatcher, The Miami Herald

Jun. 20--More Floridians are falling behind on their home loans, as interest rates on adjustable mortgages rise, insurance premiums soar and inflationary pressures like high gasoline prices take their toll on family budgets.

A national survey released Monday by the Mortgage Bankers Association found that 3.41 percent of 3.2 million mortgages being serviced in Florida were more than 30 days past due. That was up from 2.89 percent a year ago.

Florida's rise in delinquent mortgages when compared to a year ago mirrors national patterns.

And though the level of delinquencies remains relatively small, some experts fear the problem could worsen in the months ahead -- particularly if interest rates and inflation continue their upward trek.

In a worst-case scenario, homeowners who can't make their house payments could be forced into foreclosure, where the lender takes legal action to gain title to the property.

At the moment, foreclosures remain near historic lows in the state. But a faint uptick appears to be taking place, said Stuart Gitlitz, a South Florida attorney who specializes in foreclosures.

"What was a trickle is now becoming a drop," said Gitlitz.

Indeed, Florida's foreclosure rate of just .21 percent of loans is well below the national average of .41 percent, according to MBA data.

And the situation has vastly improved since 2002, when the state was shaking off the post-9/11 recession. For instance, in 2002 the Miami-Dade County Clerk recorded more than 14,500 foreclosure cases. In the first five months of 2006, by comparison, the number was just under 3,000.

One potential problem looming: The soaring popularity of adjustable rate mortgages in recent years. A federal study last year found ARMs were roughly one-third of the mortgage market in 2004, up from approximately 15 percent in 2001.

As home values leaped ever upward, the low initial rates of ARMs -- typically considerably below that of fixed-rate loans -- made houses more affordable to buyers. But that can come back to haunt consumers when mortgages are adjusted to market levels later.

At 5 percent, for instance, a $250,000 mortgage with a 30-year term costs $1,342.05 a month, according to a mortgage calculator on Bankrate.com.

At 6 percent the payment rises to $1,498.88.

If rates rise to 7 percent, the payment leaps to $1,663.26.

But Florida homeowners have several factors working in their favor. The labor market remains white-hot, for instance, with unemployment in Miami at just 3.5 percent and 2.8 percent in Broward.

That means a historic bane of homeowners -- layoffs -- is less likely to produce the long-term unemployment that can lead to foreclosure.

Furthermore, it means homeowners who were having trouble holding on to their home could likely find a buyer on their own before losing it to foreclosure.

"In prior quarters we have indicated a number of factors, including the aging of the loan portfolio, increasing short-term interest rates and high energy prices, which are putting upward pressure on delinquency rates," said Doug Duncan, chief economist of the Mortgage Bankers Association. "The strong economy and labor markets are offsetting positive factors that were particularly important in the first quarter."

Still, he warned that "additional modest increases in delinquency and foreclosure rates are likely in the quarters ahead."

Other experts say the issue certainly doesn't appear to be a looming threat. "It takes at least a year" for economic problems to manifest into foreclosure actions, said Vivian Sierra, vice president of residential lending for Miami's U.S. Century Bank.

And while there is unceasing speculation about the South Florida real estate market, she doesn't see any major problems with the residential market. "I don't see a bubble bursting."

Ken Thomas, a Miami banking analyst, concurred. Historically, waves of foreclosures can wreak havoc on the nation's banks. But today the banking system is enjoying prolonged prosperity. On June 24, it will have been two years since the government has had to bail out a failing bank, for example.

"The bubble may be seeping," Thomas said of real estate. "But my gut feeling is that there's no evidence of major problems."

Miami Herald writer Gregg Fields contributed to this report.

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Copyright (c) 2006, The Miami Herald

Distributed by Knight Ridder/Tribune Business News.

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Source: The Miami Herald

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