US house mortgage arrears mount

Mortgage delinquencies have risen in nearly all US congressional districts from the levels of the last election, highlighting the political pressure on US policymakers as they gather in Washington on Tuesday to tackle the housing crisis.

Tim Geithner, Treasury secretary, and Shaun Donovan, housing secretary, are meeting investors, bankers and public policy experts to discuss housing finance. Investors continue to shun private-sector mortgages, with most new home loans now financed through Fannie Mae and Freddie Mac, the agencies taken over by the government in 2008.

Investors on Monday signalled growing concerns about the US economy, pushing bond yields down to the lowest levels since the height of the crisis. Ten-year Treasury yields dropped 9 basis points to 2.60 per cent, the lowest level since March 2009. Seven-year Treasury yields fell to a record low of 1.98 per cent.

Mortgage rates have also plunged to record lows but falling borrowing costs have failed to revive the US housing market. Indeed, the Washington deliberations, which will centre on what the level of government support for Fannie and Freddie should be, comes amid continuing pain for homeowners.

In the average congressional district, serious mortgage delinquency rates – defined as borrowers more than three months behind on their payments – are 9.4 per cent, compared to 3.3 per cent at the time of the election in 2008, according to a study by Deutsche Bank.

“That pace of deterioration alone should put housing and mortgage finance on most political radars,” said Steven Abrahams, managing director at Deutsche.

The pain remains concentrated in states such as Florida, California and Nevada. More than one in five borrowers are at least three months overdue on their mortgage payments in 23 congressional districts – including 13 in Florida, six in California and two in Nevada.

Mr Abrahams said the importance of housing in congressional races raised the chances of dramatic proposals to boost the market, including forms of principal forgiveness and mass refinancings through Fannie and Freddie.

The problem facing the Democratic party in November is that even though the housing crisis began during the Bush administration, many voters blame President Barack Obama for their persisting economic woes.

That has raised the chances that Republicans could take control of the House of Representatives. Two-thirds of Americans say the economy and jobs are the most important problems facing the country today, according to a Gallup poll published on Friday. National unemployment hit 9.5 per cent in July, up from 6.7 per cent in November 2008 .

“Democratic fortunes are sinking where the economy has sunk,” said David Wasserman, who monitors House races for the Cook Political Report. “That is especially true in the ‘foreclosure ring of fire’ in Florida, Nevada and California.”

Additional reporting by Michael Mackenzie in New York