Delinquencies, foreclosures rise to nearly 12 pct.

Foreclosures are spreading by epidemic proportions, expanding beyond a handful of problem states and now affecting almost 1 in every 8 American homeowners.

It's an economic role-reversal: The economy, driven down by the collapse of the housing bubble, is causing the housing crisis to spread.

Figures released Thursday show that nearly 12 percent of all Americans with a mortgage - a record 5.4 million homeowners - were at least one month late or in foreclosure at the end of last year.

That's up from 10 percent at the end of the third quarter, and up from 8 percent at the end of 2007. In addition, the numbers now include many once-qualified borrowers who took out fixed-rate loans.

Data from the Mortgage Bankers Association also showed that a stunning 48 percent of homeowners who have subprime, adjustable-rate mortgages are behind on their payments or in foreclosure.

The reckless lending and borrowing practices in states like Florida, California and Nevada that were the epicenter of the problem are no longer driving up the nation's delinquency rate.

Instead, foreclosures are being fueled by a spike in defaults in places such as Louisiana, New York, Georgia and Texas, where the economy is rapidly deteriorating and unemployment is climbing.

"It's jobs. People are losing their jobs left and right," said Houston real estate agent Michael Weaster.

On Thursday, the Labor Department said new unemployment claims last week totaled 639,000, lower than expected, but still at elevated levels.

That trend highlights one of the biggest challenges confronting the Obama administration's mortgage-relief plan launched this week. While the $75 billion plan could help change the loan terms or refinance up to 9 million homeowners, unemployed borrowers will have a hard time qualifying.

The key to the housing market is what kind of workers are losing their jobs. Unemployment for people with college degrees, some college education or technical training - those most likely to own homes and have prime fixed-rate loans - has nearly doubled over the past six months, according to the bankers association.

To give debt-burdened homeowners a little more muscle to negotiate with their lenders, the House on Thursday passed a bill 234-191 that would to give bankruptcy courts the power to reduce mortgage payments.

The legislation would give bankruptcy judges - who now can modify loans for cars and student loans but not for primary residences - new power to cut the interest rate and principle on a home mortgage.

The Senate is expected to take up the measure in a couple of weeks.

The only bright spot in the foreclosure report was that the devastation wrought by subprime ARMs is waning. Their 30-day delinquency rate continues to fall and is at the lowest point since the first quarter of 2007. Most of those types of loans have made their way through the system as lenders stopped originating them in the first half of 2007.

That offers little comfort to Florida, where 60 percent of homeowners who have a subprime ARM are at least one payment behind and 1 in 5 of all mortgage holders are not current on their loans.

And while the worst is not over for Florida, the problems appear to be just beginning in once-healthy markets like Houston and New York.

The number of unsold homes in Houston skyrocketed to a 17-month supply in February from eight months in January because homeowners fear they will be in financial straits soon or already are, said Weaster, of Century 21.

And in the New York area, where the financial industry is handing out pink slips like ticker tape, homeowners who once had good credit are defaulting at an increasing clip.