Mortgage crisis spreads to those with good credit

Bankers say the worst is yet to come

The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is building.

Now it's homeowners with good credit who are falling behind on their payments in growing numbers.

The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. And delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

Though it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said.

Defaults are likely to accelerate, because many homeowners' monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks tighten their lending standards, making it harder for people to refinance loans or sell their homes.

"Subprime was the tip of the iceberg," said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. "Prime will be far bigger in its impact."

In a conference call with analysts last month, James Dimon, the chairman and chief executive of JPMorgan Chase, said he expected losses on prime loans at his bank to triple in the coming months and described the outlook for them as "terrible."

Delinquencies on mortgages tend to peak three to five years after loans are made, said Mark Fleming, the chief economist at First American CoreLogic, a research firm.

"We will hit those points in a few years, and that will help in many ways," Fleming said, referring to the loans made later in the housing boom. "We just have to survive through this part of the cycle."

Data on securities backed by subprime mortgages show that 8.41 percent of loans from 2005 were delinquent by 90 days or more or in foreclosure in June. That is up from 8.35 percent in May, according to the research firm CreditSights. By contrast, 16.6 percent of 2007 loans were troubled in June, up from 15.8 percent.

Some of that reflects basic math. Over the years, some loans will be paid off as homeowners sell or refinance, and some homes will be foreclosed upon and sold. That reduces the number of loans from those earlier years that could default. Also, since the credit market seized up last year, lenders have become much more conservative and have stopped making most subprime loans.

What will sting prime borrowers, analysts say, is having to pay interest and principal every month after spending several years paying only interest. Such loan terms were popular during the boom.

But some borrowers could see their payments jump 50 percent.