Foreclosures and delinquencies still piling up

The U.S. housing market continued to deteriorate in the third quarter as even the most credit-worthy borrowers increasingly fell behind on their mortgages, highlighting the problems policy makers have faced in trying to address the problem.

A new report from the Office of Thrift Supervision and Office of the Comptroller of the Currency found that the percentage of current and performing mortgages dropped for the sixth consecutive quarter, as foreclosures in process topped 1 million mortgages at the end of September. The report covers roughly 34 million loans totaling $6 trillion in principal balances, or approximately 65% of the U.S. mortgage market.

The regulators said that serious delinquencies, loans that are at least 60 days past due, increased across all loan categories and climbed to 6.2% of the loans in the portfolio during the third quarter. The report said that just 67.7% of option adjustable-rate mortgages were considered current at the end of the third quarter, while 27.9% were either seriously delinquent or in the process of foreclosure.

The most troubling finding was that even borrowers considered "prime," or the least risky, increasingly can't pay their loans. The report said that 3.6% of prime mortgages were more than two months behind on payments, more than double from a year ago.

The regulators noted that banks and thrifts have increased their efforts to help some borrowers, implementing more than 680,000 loan modifications, trial period plans or payment plans during the third quarter. That includes roughly 274,000 plans initiated through the Obama administration's Home Affordable Modification Program, which provides borrowers with a three-month trial period to successfully pay for their modified loans. Borrowers who meet the requirements then have their loans permanently modified.

But even attempts to modify loans are yielding a low rate of success, a problem that policy makers have been unable to deal with successfully over the last several years as they seek to right the housing market. The report said that more than half of all modified loans were more than 60 days past due or in foreclosure within six months of modification, and less than 1% of loans modified under the administration's plan had been permanently modified through the end of September.

Additionally, banks and thrifts remain unable to keep the pace of modifications anywhere close to the number of struggling borrowers who need help. The report said that only one in six borrowers who were seriously delinquent or facing foreclosure at the end of the third quarter received a load modification or trial payment plan. There were more than 369,000 new foreclosure actions during the third quarter.