One of eight U.S. households with a mortgage ended the first quarter late on loan payments or in the foreclosure process in a crisis that will persist for at least another year until unemployment peaks, the Mortgage Bankers Association said on Thursday.

U.S. unemployment in April reached its highest rate in more than a quarter century and is still rising, helping propel mortgage delinquencies and foreclosures to record highs.

Such economic conditions drove up foreclosures of prime fixed-rate mortgages, which represented the largest share of new foreclosures for the first time since the rapid growth and the ensuing collapse of the subprime loan market.

We clearly haven't hit the top yet in terms of delinquencies or the bottom of the housing market, Jay Brinkmann, the association's chief economist, said in an interview.

Prime fixed-rate loans, made to borrowers with high credit quality, comprise 65 percent of the $9.9 trillion in outstanding first mortgages, according to the industry group.

The housing market depends on the employment situation, he said, and we don't expect unemployment to bottom out until the middle of next year, so then normally housing would not recover until after employment recovers.

A record 12.07 percent of loans on one-to-four unit residences were at least one payment past due or in the foreclosure process in the first quarter, on a non-seasonally adjusted basis.

Foreclosure actions were started on an all-time high 1.37 percent of first mortgages in the quarter, a record increase from 1.08 percent the prior quarter.

The share of loans in the foreclosure process rose to a record 3.85 percent from 3.30 percent in the fourth quarter and 2.47 percent a year earlier.

California, Florida, Arizona and Nevada accounted for nearly half of the new foreclosure activity in the quarter and half of the increase in prime fixed-rate foreclosure starts.

Those severely hit states, the biggest winners in the five-year housing boom earlier this decade, continue to worsen as recession overtakes problems spawned by lax lending standards.

Every job loss, every divorce, every incident like that is going to be turning into a foreclosure because they are so far under water with the homes already, Brinkmann said.

When a house is under water, its price has fallen below the size of the mortgage.

Average U.S. home prices swooned more than 32 percent in March from the 2006 peak, according to Standard & Poor's/Case-Shiller indexes.

Foreclosures mounted in the first quarter even though various temporary moratoriums were in place to delay the failure of distressed loans.

The short-term freezes artificially tempered new foreclosures before federal loan modification programs took root.

But loans that had already been modified re-defaulted in the quarter, Brinkmann said. Foreclosure actions also were taken on vacant homes, which make up as much as 40 percent of the properties with failing mortgages, Brinkmann said.

Some loan servicers also began the foreclosure process on borrowers who clearly did not qualify under the various mortgage fixes, he said.

On a non-seasonally adjusted basis, the delinquency rate dipped to 8.22 percent from 8.63 percent.

The bankers' group noted that the late payment rate always declines in the first quarter due to seasonal factors and said that after such adjustments, the rate jumped to a record 9.12 percent.

(Editing by Kenneth Barry)