The report examined the delinquency rate for all mortgages held on residential properties of one to four units. It revealed that though the overall rate in the second quarter ticked up only slightly, the picture was worse for adjustable rate mortgages, which constitute about 25 percent of all loans.

Delinquency rates rose to about .51 percentage points which was a significant increase of 23 percent compared in 2005.  Borrowers with fixed rate loans, who are unexposed to interest rate rises, fared better. The delinquency rate for prime, fixed-rate loans actually dropped slightly (0.02 percentage point) from the second quarter of 2005.

Some economists think delinquency problems will get worse. Dean Baker, of the Center for Economic and Policy Research predicted the rise in defaults last July in a report entitled "The Housing Bubble Fact Sheet."

The problem, according to Baker, is that many homeowners have borrowed against this new equity and when home prices fall, they may find themselves "underwater," with the amount of their mortgage higher than the value of their house. That would mean more of them would walk away, simply default on their mortgage and turn their house over to the mortgage holder.

Edwina Baniqued