While Vermont's mortgage delinquencies and foreclosures continue to trail the rest of the nation, the number of homeowners in the state falling behind on their monthly payments rose a half-percent in the second quarter to 3.92 percent, according to the Mortgage Bankers Association.

Nationally, the seasonally adjusted delinquency rate for the second quarter was a record 6.41 percent — up from 6.35 percent the previous quarter.

Although delinquencies (30 days or more past due) in the state increased during the most recent quarter, Vermont had the ninth lowest delinquency rate among the 50 states, the District of Columbia and Puerto Rico.

The Mortgage Bankers Association reported Friday that 9 percent of the nation's homeowners were either behind in their mortgage payments or in foreclosure.

Vermont tied for 21st in the percentage of homes in foreclosure at 1.54 percent at the end of the second quarter. That compares to a national average of 2.75 percent (not seasonally adjusted) and a New England average of 2.11 percent.

The Mortgage Bankers Association also reported that Vermont is near the bottom, ranking 46, in the number of new foreclosures started at 0.49 percent, up slightly from the previous quarter.

According to the state Banking Division, foreclosures have jumped nearly 30 percent through August to 1,111 foreclosures compared to 793 for the same period last year.

But from May's peak, when 156 foreclosures were filed, foreclosures have declined each month to 115 in August.

"We've really gone down a little bit but steadily," said Thomas Candon, deputy commissioner of the Department of Banking, Insurance, Securities and Health Care Administration. He cautioned, however, that the number could go back up in the fall as homeowners feel the pinch of higher heating costs.

Chittenden County, the state's most populous county, has the most foreclosures with 189 through August followed by Rutland County with 173.

The state Banking Division began a hotline, (888) 568-4547, in April to help Vermonters having trouble making their mortgage payments. So far, Candon said 160 Vermonters have called the hotline with 50.6 percent of the calls from people making late payments and 16.5 percent of calls from homeowners in foreclosure.

He said nearly half the callers cited loss of a job as the reason for their mortgage problems with another 20 percent citing medical bills and 16 percent having problems because of divorce or separation.

"If anyone is having trouble paying their mortgage or think that they might be, they really should take early action in contacting their lender or they're certainly welcome to call our toll-free number if we can be of assistance," Candon said.

The mortgage crisis began with a meltdown in subprime loans — loans made to borrowers with spotty credit histories. But the Mortgage Bankers Association said the problem has now extended to prime loans.

Again, Vermont has a lower percentage of subprime borrowers than the national average. Of the 62,606 mortgages being serviced in Vermont at the end of the second quarter, only 4,478 were classified as subprime, or 7 percent of all mortgages. Nationally, the percentage of subprime loans is more than 12 percent.

Vermont has largely escaped the mortgage mess experienced by larger states where subprime loans were prevalent. "On a statewide basis, we didn't see near the level of risk being taken," said Michael Tuttle, president of Merchants Bank, the largest bank headquartered in the state. "I don't think we saw a lot of these exotic mortgage products."

He also said Vermont didn't experience the "wildly speculative levels of building" that took place in other states like Florida and California.

"Of course the only way they could really repay those loans was through the sale of the properties," Tuttle said, "so when the prices dropped all the loans went underwater and the foreclosure rates went up substantially and the number of properties that went on the market went up dramatically and it drove prices down."

At Merchants Bank, delinquencies and foreclosures haven't been a concern.

"Our delinquency experience is pretty consistent with what it's been the last several years," Tuttle said.

While many banks will typically sell the mortgages they write on the secondary market, he said Merchants Bank holds onto its loans.

"When we book a loan we book it with the understanding that it's got to work for both us and the borrower," Tuttle said. "It's not something we're going to pass onto somebody else if it doesn't work out."

If anything has changed, the mortgage crisis has meant a ripple effect of tighter credit.

"I would say we're a little tighter than a year ago," Tuttle said.

Even with those somewhat tighter credit standards, he said Merchants expects to have a near-record volume of mortgages this year.

As far as the federal takeover of mortgage giants Fannie Mae and Freddie Mac, Tuttle said the short-term effect may be lower interest rates as investors regain confidence in buying the mortgage-backed securities.

"I think the risk premium will be reduced as a result," he said. "I think it will have that impact near term. I don't know if that's going to be the case long term."

Contact Bruce Edwards at bruce.edwards@rutlandherald.com.