Prime loans move into foreclosure

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Bob Moon: So Ed McMahon could end up being one in a million facing the loss of their homes.

The Mortgage Bankers Association reports today that the number of homes now in foreclosure is now more than a million. It’s the highest rate ever recorded: 2.5 percent of all loans being serviced by members of the industry group are in foreclosure and the association is warning that the number is still rising.

One of the significant new trends: There’s been a sharp increase in delinquencies of prime fixed-rate loans, the kind that had been considered very low risk.

Greg McBride is senior financial analyst with Bankrate.com:

Greg McBride: Mortgage delinquencies and foreclosure are more than a subprime mortgage story. There were a lot of bad loans that were very poorly underwritten in recent years and as a result, you’re seeing a lot of borrowers from all walks of life increasingly defaulting on loans.

McBride says this threatens to keep on rolling in a vicious cycle:

McBride: Going forward the big villain appears to be falling home prices. Falling home prices could capture a lot of borrowers that are presently current on their loans, but if they go that far underwater, they may be tempted to just walk away.

And more foreclosures dump more homes on the market and drag prices even lower, making it harder for homeowners who slip behind to sell their homes if they need to.