Foreclosure notices hit a record high

WASHINGTON - A record number of foreclosure notices was sent to homeowners in the spring as they struggled to keep up with increases in adjustable-rate mortgages, a report yesterday showed.

The problem was the most severe in the industrial Midwest and former housing-boom areas such as California and Florida, but economists warned that the situation would get worse in coming months as an estimated two million adjustable-rate mortgages taken out with low introductory interest rates reset to much higher rates.

The crunch is most severe in subprime mortgages, loans provided to borrowers with weak credit, but it is now spreading to other types of mortgages, according to the quarterly report from the Mortgage Bankers Association.

That report showed the number of homeowners who got foreclosure notices in the April-to-June quarter hit an all-time high of 0.65 percent, compared with 0.58 percent in the first three months of this year. It marked the third consecutive quarter that a record had been set.

"You have a lethal combination of higher mortgage payments, lower house prices, a weaker job market, and more cautious lenders," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pa. "That is a very noxious mix, and it is the reason for this surge in foreclosures."

Zandi put the possibility of a recession at 40 percent, almost four times the possibility he had estimated in July, before the current credit crunch hit.