Sub-prime foreclosure outlook dim into 2008

How bad is the sub-prime mortgage meltdown?

The short answer is nobody knows for sure, but the indicators don’t look good.

In May, payments were late on at least 12.4% of sub-prime mortgages. That number includes properties already in foreclosure or taken back by lenders. That was a 10-year high, and up from 6.72% a year earlier, said Michael Youngblood, the top mortgage-bond analyst at Arlington, Va.-based Friedman, Billings, Ramsey Group Inc. By May 2008, he predicted, the rate would be 14.6%, the highest ever.

Among so-called Alt-A mortgages, or loans to borrowers with atypical credit, the rate was 2.69% in May, compared with 0.89% in May 2006. Youngblood forecast that would rise to 3.92% in May 2008.

And among jumbo mortgages -- loans of more than $417,000 -- the rate was 0.37% in May, up from 0.22%. Youngblood predicts that will hit 0.53% in May 2008.

Mortgages with adjustable rates and other payment-changing features are likely to boost defaults. About 1.1 million foreclosures will result from various resets on all adjustable-rate mortgages made from 2004 through 2006, according to a March study by realty-data company First American Corp.