New Foreclosures Hit Record

The rate of mortgage loans entering the foreclosure process was the highest in history during the second quarter, the Mortgage Bankers Association said Thursday.

The foreclosures, which are tied to the resetting of trillions of dollars in adjustable rate mortgages, were the worst in California, Florida, Nevada. and Arizona, where the housing boom was hottest but has now turned to a bust.

These states have some of highest levels of ARMs, and as housing prices drop, many homeowners are facing negative equity when trying to refinance or sell the home.

Outside of these states, apparently the default and foreclosure story is not as bad.

"Were it not for the increases in foreclosure starts in those four states, we would have seen a nationwide drop in the rate of foreclosure filings," said Doug Duncan, chief economist with the Mortgage Bankers Association.

Ohio and Michigan, however, also continue to see high delinquency rates and foreclosures because of mortgage resets and tough economic conditions.

Loans in the foreclosure process accounted for 1.4% of all mortgage loans outstanding at the end of the second quarter, up 41 basis points from a year ago but still slightly lower than the recent high in 2002. Borrowers entering foreclosure represented 0.65% of all loans, up 22 basis points from a year ago and a record level.