Servicers Brace for Default Surge.

WASHINGTON -- The delinquency rate for single-family home loans jumped by 28 basis points to 5.12% in the second quarter of this year, and the number of loans entering foreclosure reached an all-time high, according to the Mortgage Bankers Association's quarterly delinquency survey.

And that, according to MBA chief economist Doug Duncan, is putting a strain on loan servicers. Moreover, conditions may get worse before they start to improve, he said.

"I think clearly the most expensive activity in loan servicing is the management of delinquencies and foreclosures, and we have seen a significant rise in those costs in the operating data in our surveys of peer groups," he told reporters on a telephone call after the MBA released the most recent delinquency figures.

Firms that service subprime ARMs, which have seen the most dramatic deterioration in loan performance, have already started beefing up on default management and loss mitigation staff, he said.

The problem facing the industry is that because of the long boom in housing, delinquencies and defaults have been at historically low levels for some time. As a result, there are not a lot of people with default management experience "sitting on the sidelines" waiting to be hired, Mr. Duncan said.

"There is no question that firms have been working feverishly attempting to get additional staff," he said.

The rate of loans entering the foreclosure process, at 0.65% on a seasonally adjusted basis, is up seven basis points from the first quarter and 22 basis points from one year earlier. The foreclosure start rate is at an all-time high for the delinquency survey.