The worst states are continuing to get much worse

"The worst states are continuing to get much worse" Yes, that's what the head of the MBA had to say about the foreclosure situation in the US.

From the LA Times

A sharp drop in prices along with the resetting of ARM loans in California and Florida are cited. The two states accounted for 39% of all foreclosures started in the country, an analyst says.

The percentage of home loans entering foreclosure nationwide rose to a record level in the second quarter of this year, driven by the one-two punch of sharp home price declines and resetting adjustable-rate loans in California and Florida, the Mortgage Bankers Assn. said today.

With a combined 18% of the population, "California and Florida accounted for 39% of all the foreclosures started in the country," Brinkmann said.

The national average for foreclosure starts -- the time a lender turns a delinquent loan over to lawyers -- was 1.09% during the quarter, up from 0.99% in the first quarter and 0.65% in the second quarter of 2007, the association said.

The latest figure was 1.82% in California, which has 12% of the nation's population, and 2.21% in Florida, which has another 6% of the population.

Another way to look at the problem: Only eight states were above the national average in foreclosure starts. The others were Arizona, Nevada, Michigan, Rhode Island, Indiana and Ohio

One key driver for the trend is an unusually high number of mortgages that move from early delinquencies into foreclosure. The percentage of California borrowers with at least one payment past due was 5.78%, less than the national average of 6.41%.

Brinkmann said Californians who fall behind on payments are more likely to have their homes go into foreclosure in part because falling home prices, which have lopped 30% off peak prices in many areas of the state, have reduced the value of their homes to far less than what they owe.

Combined with that is the prevalence in California and Florida of pay-option adjustable rate mortgages. These tricky loans, made to borrowers with decent credit scores, allowed the borrowers to pay less than the interest due each month, adding the difference to their loan balance.

When those loans "recast" to require full payments, typically three to five years after they are made, many borrowers find themselves owing 10%, 15% or even 25% more than they started with at a time when their home value is much lower.