South Carolina’s foreclosure rate remained among the nation’s highest last fall, and worsened for homeowners with the riskiest loans — subprime borrowers with adjustable rate mortgages.

Roughly 1.6 percent of all home mortgage loans in the state were in foreclosure from July through September — the eighth-highest foreclosure rate in the nation and little changed from the second quarter, according to an American Mortgage Bankers Association’s report released Wednesday.

The U.S. foreclosure rate was 1 percent in the third quarter, up slightly from the second quarter.

The problem is aggravated in South Carolina because so many households have members who have been laid off. They often find replacement jobs with lower pay and few medical benefits, said Sue Berkowitz, director of the South Carolina Appleseed Legal Justice Center, a Columbia-based advocacy group.

“For most families, especially low-wage families, you’re doing everything you can. There’s no give anywhere,” Berkowitz said.

The S.C. foreclosure rate translates into about 12,000 foreclosures among about 750,000 S.C. homeowners with mortgages. About 600 of the foreclosures are among the roughly 37,000 S.C. homeowners with adjustable rate mortgages considered subprime. Such homeowners pay higher rates because they are riskier borrowers.

South Carolina’s foreclosure rate for subprime adjustable rate mortgages was 6.5 percent in the third quarter, up from 6 percent in the second quarter. The U.S. foreclosure rate on subprime ARMs was 4.7 percent in the third quarter, up from 3.9 percent in the second quarter.

Foreclosures will continue rising through mid- to late 2007 as adjustable rate mortgages continue to raise rates on borrowers, said Doug Duncan, senior economist for the association based in Washington, D.C.

The group has been expecting rising foreclosure rates because foreclosures peak in the third to fifth year of a mortgage, and more than half of adjustable rate mortgages were issued after 2003. The numbers will level off as the housing market begins recovering late next year, he said.

Columbia bankruptcy lawyer Michael J. Cox is finding more clients threatened with foreclosure because of increases in interest payments on adjustable rate loans. Rates might have started at 3 percent, but now are jumping past 8 percent.

Berkowitz said many households took out adjustable rate mortgages not understanding the risks.

“It’s a recipe for disaster,” Berkowitz said. “You’ve probably got some on the edge of affordability anyway, and when the rates go up, it pushes them off the cliff.”

Duncan, of the mortgage bankers’ group, said there is no need for further regulation.

Subprime adjustable rate mortgages account for only about 7 percent of loans, too small a number to hurt the nation’s economy, he said. They account for 5 percent of loans in S.C.

South Carolina’s unemployment and foreclosure rates trended at or below the nation’s for years. But since the 2001 recession, the state has fared significantly worse by both measures. Jobless rates in October were 6.6 percent in South Carolina and 4.4 percent for the nation.

Reach DuPlessis at (803) 771-8305.

FORECLOSURES

South Carolina had the nation’s eighth-highest foreclosure rate for July through September — 1.6 percent overall. The rate was worse for high-risk borrowers with subprime loans.

Total

Adjustable rate mortgages

SOURCE: American Mortgage Bankers Association