The rate of home loans in foreclosure rose to a record high in the second quarter of 2007 as more homeowners in California, Florida and other states could not refinance their adjustable-rate mortgages, a trade group said on Thursday.

The Mortgage Bankers Association said 0.65 percent of loans entered the foreclosure process on a seasonally adjusted basis, 7 basis points higher than the previous quarter and up 22 basis points from a year earlier.

It was the third straight quarter in which the foreclosure rate rose to a record-setting level and the worst is likely still ahead, the MBA said.

"Where we might have suggested only one to three quarters to go, it is likely that has been extended to some degree and we will see delinquencies and foreclosure rise," said Douglas Duncan, the MBA's chief economist.

The peak of loan failures might not hit for another year or more as many borrowers face increased payments on their adjustable-rate loans, he said.

Foreclosures increased as the rate of delinquency on subprime loans offered to borrowers with poor credit rose to 14.82 percent in the second quarter from 13.77 percent at the end of the first three months of 2007, and from 11.7 percent in the year-ago period.

While the national rate of failed loans continues to rise, the problems are concentrated in several of the states that saw the largest price gains during the recent housing boom, the trade association said.

"What continues to drive the national numbers ... is what is happening in the states of California, Florida, Nevada and Arizona," said Duncan.

Home buyers in those four states relied on the low, introductory costs of adjustable-rate mortgages. Payments on many of those loans are due to climb over the next year or so.

The national foreclosure rate excluding those four states actually declined in the quarter, Duncan noted. But the states will continue to drive the national averages because declining home prices there make it harder to refinance loans, inventories of homes for sale are soaring and a disproportionate amount of loans are to investors who have less at stake, he said.

Expected deeper house price declines into 2008 have sparked forecasts of a steeper rise in delinquencies. The performance of loans, mostly subprime, has already created steep losses in the $7.2 trillion mortgage securities market and is the source of a rapid pull-back in credit to all kinds of consumers and businesses around the world.

Delinquencies "have gone up, and that's expected," said Dan Seto, senior economist at Sumitomo Mitsui Asset Management in New York. But "they haven't gone up to the degree that the markets have priced in. These are not disastrous numbers."

A weak economy and job losses in the Midwest have strained homeowners in that region and pushed up the national rate of failing loans, the MBA said.

One of every hundred home loans in Michigan entered foreclosure process in the last quarter, while Ohio has twice the national average of loans in serious arrears, according to MBA data.

The reduction in credit led central banks in Europe and the United States to inject billions of dollars into the banking system in recent weeks to keep the credit tightening from affecting economic growth. The Federal Reserve has cut the rate at which banks borrow from the central bank and is expected to lower its key federal funds rate this month.

Duncan also noted that loans to strong borrowers in fixed-rate mortgages continue to perform well even as subprime and adjustable-rate loans slide.

"The seriously delinquent rate for prime fixed-rate loans was essentially unchanged from the first quarter of the year to the second," Duncan said in a statement.

In that time, the rate of seriously delinquent subprime loans rose 277 basis points.