Mortgage defaults growing in housing's top tier

About 30% of foreclosures in June involved homes in the top third of local housing values, up from 16% when the foreclosure crisis began three years ago, according to new data from real-estate Web site Zillow.com. The bottom one-third of housing markets, by home value, now account for 35% of foreclosures, down from 55% in 2006.

The report shows that foreclosures, after declining earlier this year, began to accelerate in the late spring and that more expensive homes have more recently accounted for a growing share of all foreclosures. "The slope of that curve in recent months is much sharper than it was recently," said Stan Humphries, chief economist for Zillow. Rising foreclosures among more-expensive homes could create added pressure for a housing market that has shown signs of stabilizing in recent months as sales of lower-priced homes pick up.

The Zillow research compared homes against the median values for their local market and broke each market into three tiers by value. Zillow then looked at the share of monthly foreclosures in each tier over the past decade.

Foreclosures are rising in more expensive markets as home values in those areas fall, leaving more homeowners with mortgages that exceed the value of their properties. Prime loans accounted for 58% of foreclosure starts in the second quarter, up from 44% last year, according to the Mortgage Bankers Association. Subprime mortgages accounted for one-third of foreclosure starts, down from one-half last year.

There really is no end in sight. The administration is trying desperately to artificially prop up the value of homes by forcing banks to renegotiate terms and softening up loan guarantees by Fannie Mae. But housing prices continue to fall. And as they do, more Americans wake up one morning to find the value of their house is less than the loan they took out to pay for it. At that point, it becomes an economic albatross and drags the homeowner into default.

Some analysts believe home values must further plummet as much as 30% before we see a turnaround nationwide. That will probably take years - in which case, any recovery from the recession will be weak and probably short lived.