The percentage of U.S. mortgages entering foreclosure in the first three months of the year was the highest in more than 50 years, according to the Mortgage Bankers Association.
As the association released its numbers, the Federal Reserve held a hearing to determine whether regulators could do anything to crack down on abusive lending practices, which have exacerbated the problem
The problems arose last year as the housing market softened, driving down home prices and making it more difficult for cash-strapped borrowers to sell their homes or refinance their way out of trouble.
The most dramatic fallout took place in the sub-prime market, which caters to people with blemished credit or other factors that make them a risk to lenders.
Those borrowers entered foreclosure at a rate of 2.43 percent, up from 2 percent the previous quarter. The percentages seem small, but they are far above norms, particularly in a healthy economy. The concern is that the mortgage industry's troubles could damage the economy if they are not contained.
This is a problem that isn't going away anytime soon. The following graph (shamelessly nicked from At These Levels) shows the volume of upcoming ARM mortgage resets. In the next 24 months close to a trillion dollars worth of these mortgages (4 - 5 million homes) are going to reset with at least 60% of those resets coming in the sub-prime market. A fair amount of these sub-prime mortgages have large penalties for prepayment, that and along with slumping home prices makes it very hard to refinance your way out of your loan. You're just stuck on the rocky road to foreclosure.
When that happens the economy is going to go south pretty quickly.