New Foreclosures Reach Record.

WASHINGTON -- The rate of loans entering the foreclosure process in the first quarter of 2007 set a record at 0.58% on a seasonally adjusted basis and delinquencies are up for the year, but 24 states actually saw a decline in foreclosure starts and delinquencies are improving relative to the previous quarter, according to the latest MBA National Delinquency Survey.

The percentage of loans in foreclosure would be well below the average of the last 10 years were it not for Ohio, Michigan and Indiana, said MBA chief economist Doug Duncan during a conference call regarding the survey. And the rate of foreclosures started nationwide would have fallen were it not for the big jumps in California, Florida, Nevada and Arizona. "Those states have special circumstances that do not reflect what is happening in the rest of the country," he said.

"While foreclosure starts increased slightly from last quarter, thus setting another record, most of the increase was due to only four states, California, Florida, Nevada and Arizona."

Foreclosures are being influenced by the fact that investors and borrowers have started to walk away from the properties now that home prices have started to fall in areas of those states and they face resets in the adjustable-rate mortgages they took out on these homes. "In addition, speculators in Florida are also facing much higher insurance bills."

The rate of foreclosures started on subprime ARMs jumped from 2.7% in the fourth quarter of 2006 to 3.23% in the first quarter of 2007. Mr. Duncan said 26 states had decreases in the foreclosure rate on subprime ARMs, and the national foreclosure rate on these loans would have declined if not for the increase in California, Florida, Nevada and Arizona.

"If house prices, overbuilding and investor participation in those markets is greater rather than lesser, it will delay the pace of recovery and continue the pace of foreclosures. What we do not know yet is the degree to which those investors have reacted. It is possible in an attempt to cut their losses they have moved rapidly to drop the property. The bulge in new foreclosure starts is reflecting that. If there are fewer of those incidents, foreclosure starts could start to fall," said Mr. Duncan during the call.

While Ohio, Indiana, and Michigan account for 8.7% of the mortgage loans in the country, those three states account for 19.9% of the nation's loans in foreclosure and 15% of all of the foreclosures started in the country during the first quarter of 2007, the survey reported. According to Mr. Duncan, without these three states, the percent of loans in foreclosure would be below the average over the last 10 years, 1.12% vs. an average of 1.19%.