By Danielle Reed
From The Wall Street Journal

As home-price appreciation has tapered off and mortgage rates have risen, foreclosures have started to pick up, with the Midwest region hit hardest.

The rate of foreclosure -- the process by which banks can ultimately take back the properties that secure mortgages -- is a key indicator that real-estate analysts and investors use as a signal of market distress.

In the past several years, foreclosures across the U.S. have been hovering around historically low levels, as home prices have risen nearly 50% in five years. This appreciation enabled borrowers to sell their homes relatively easily to resolve mortgage difficulties.

Now, a survey of the latest data confirms, that is starting to change, with an uptick across the U.S. in foreclosure rates and mortgage delinquencies (or late mortgage payments). But even the new higher rates of foreclosure and delinquencies are still low in historic terms.

Nationally, the number of mortgage loans that entered some stage of foreclosure rose to 117,259 in February, up 68% from the same month a year earlier, according to Irvine, Calif., online foreclosure-data service RealtyTrac.

Delinquencies are up as well. Data provider LoanPerformance, a subsidiary of First American Real Estate Solutions, reported that 3% of the most vulnerable loans -- those made to borrowers with less than a stellar credit history -- were 90 days delinquent in February. That is up from 2.84% in February 2005. Meanwhile, 90-day delinquencies for loans made to borrowers with better credit were up to 0.76% in February, from 0.67% a year earlier.

The rise in delinquencies isn't surprising, according to Doug Duncan, the Mortgage Bankers Association chief economist. In its own quarterly survey, for the fourth quarter of 2005, the association showed a 0.26 percentage point uptick in the rate of mortgage delinquencies as well as a 0.01 percentage point increase in the foreclosure rate from the third quarter.

The MBA has "been expecting an uptick in delinquencies due to a number of factors," Mr. Duncan said in the release, including greater prevalence of riskier adjustable-rate and subprime mortgages, as well as higher interest rates and energy costs.

Digging a little further into the data shows that three states in the Midwest consistently have among the highest rates of loan foreclosures and delinquencies: Indiana, Ohio and Michigan.

The reasons behind the higher rates of foreclosures and delinquencies vary somewhat, but there are two primary drivers, said Lou Barnes, a partner with mortgage banking firm Boulder West Financial Services in Boulder, Colo.

One is family economic distress, often related to job loss or divorce. Another is a slowing pace of home-price gains. And what the states hit hardest by mortgage foreclosures have in common is relatively low home-price appreciation (compared with the national average) over the past few years, typically combined with below-trend job growth.

In Ohio, 3.22% of loans were in foreclosure at the end of the fourth quarter, according to MBA data. The national level was 0.99%. Indiana had 2.75% of loans in foreclosure, and Michigan 1.75%. The entire "East North Central" region of the country, which includes Indiana, Ohio, Michigan, Illinois and Wisconsin, had 2.05% of its loans in foreclosure, the highest regional level in the nation, according to the MBA.

Still, even with the increase in foreclosures and delinquencies, the numbers are generally not alarming to economists, as they are rising from historically low levels. The market is simply returning to more typical levels, this line of thinking goes.