A harsh labor market continues to propel mortgage delinquencies at near record rates, an industry survey said Thursday. Though the level of delinquencies moderated somewhat in the second quarter, continued troubles in the labor market suggest delinquencies and foreclosures will remain a throbbing headache for the real industry heading into 2010.

In the first quarter of this year, a record high 1.37% of all mortgage loans went into delinquency, and in the second quarter that figure only moderated one-tenth to 1.36%, said the Mortgage Bankers Association, who conduct a survey of 44 million loans across the country.

Foreclosures on subprime adjustable-rate mortgage loans have moderated substantially, but foreclosures on the other types of loans increased rapidly, such as on prime fixed-rate loans. 

Looking at data for private properties with between one and four units, delinquency rates rose to 9.24% of all loans in the second quarter, up 12 basis points from Q1, which was a record. Compared to Q2 2008, delinquency rates have jumped by 283 basis points.

"As a sign that mortgage performance is once again being driven by unemployment, prime fixed-rate loans now account for one in three foreclosure starts,” said Jay Brinkmann, MBA's chief economist, “A year ago they accounted for one in five. While 41 states had increases in the foreclosure start rate for prime fixed-rate loans, 43 states had decreases in that rate for subprime adjustable-rate loans."

Brinkmann also noted that California, Florida, Arizona and Nevada continue to account for a disproportionately high share of foreclosures. 

Mortgage News Daily Analyst Adam Quinones says "The housing market has several hurdles to get over before a recovery can even begin to be discussed. Housing supply remains elevated and shadow inventory is building as consumers attempt to trim household balance sheets. On top of that lenders have continued to tighten lending standards making it more difficult for current and prospective homeowners to  refinance or purchase. This means there will be less qualified borrowers demanding new mortgages".

Looking ahead, things can’t get much better. In residential mortgages, a record 13.16% are have at least one payment past due already, indicating that until the labor market improves, foreclosures will continue to drive people out of houses, taking prices for real estate in the entire community down with them.