According to the report, there was a significant improvement in the housing demand, albeit at a slow pace. The trend in the housing market was a remarkable contrast to the commercial real estate market which is eroding further.

Home sales have been increasing in some parts of the Western region, accompanied by increases in home prices. However, the report noted that the momentum of the real estate market recovery has been hindered by continuing increases in the number of foreclosed property on sale. The increasing foreclosure rates are being blamed for slowing the drop in the inventory of homes on the market for sale.

Because of the abundant supply of cheap foreclosure properties on the market, new home construction rate is slow to pick up throughout the region. Noting the trend, industry experts said that there is no or little possibility that the construction industry will experience a resurgence of activity in the near future.

Meanwhile, in the commercial real estate market, conditions continued to grow worse as demand for industrial and office space drop further and financings for new development projects and purchases remained at a standstill.

In its July report, the agency noted that conditions in the housing markets in the Western region was very weak but was showing significant signs of improvement. Even then, the report already noted the deteriorating condition in the commercial real estate market. In the same report, sales prices for existing and new houses drop further in many areas in the region while activity in the housing construction sector remained at historic low levels.

Nationwide, market data showed that the number of foreclosure filings increased by 5 percent in the third quarter of this year. This means that 937,840 homeowners received at least one foreclosure filing during the period.

In September, 343,638 foreclosed property on sale were reported, a decline of 4 percent from August but an increase of 29 percent from September of the previous year.

Only 12 percent of homeowners qualified for loan modifications under the Making Home Affordable program were able to have their loans modified.

According to the report, only 360,165 qualified home loans were modified to result to affordable monthly payments through August, an increase from the running total of 235,247 through July.

The Treasury Department admitted that despite the slight improvement in numbers, lenders need to do more to prevent foreclosures. Michael Barr, financial institutions assistant secretary at the Treasury, said that the 12 percent was an improvement from the 9 percent in July.

Barr reported to the House Financial Services Subcommittte that he is positive the federal government will reach its goal of helping 500,000 borrowers by the end of October.

According to Michael Barr, however, even if the Home Affordable Modification Program realizes all its goals, millions of foreclosure houses for sale will still arise in the coming months because of the continued fall in home prices in many areas and the persistence of the effects of unemployment and the downturn.

Barr cited the prediction of housing analysts that over 6 million homeowners could lose their houses to foreclosure in the next 3 years. He admits that the federal government needs to continue finding ways to work with lawmaker, agencies, state regulators and private-sector entities to help as many homeowners as possible.

A total of 47 servicers and lenders are now modifying loans, with Saxon Mortgage Services leading the servicers in performance. Saxon modified 39 percent of its qualified borrowers, increasing its 25-percent performance in July.

JPMorgan Chase led the big banks in performance, modifying 25 percent of qualified loans and improving its 20-percent performance in July. The other top performers were Citigroup, Wells Fargo and Bank of America.

Wells Fargo said it has stepped up its loan modification efforts by 64 percent compared to July and planned to surpass its goal of modifying 60,000 qualified loans by November 1.

Bank of America meanwhile said it has doubled its loan modification efforts, resulting to over 68,000 loan modifications since its previous report.

On the whole, if these lenders and servicers continue to carry out their commitment to help homeowners, they can significantly reduce the predicted millions of foreclosure houses for sale in the coming years.

Meanwhile, the percentage of FHA-guaranteed home loans has increased during the 11-month period from October last year to the middle of August this year to 23 percent of all new mortgages issued nationwide.

During the 11-month period, applications for single family house loans guaranteed by FHA increased to 2.52 million loans, an increase of 50 percent from the total in the previous 11-month period.

The number of approved FHA loans for home purchases, reverse mortgages and refinancings increased by 70 percent to 1.67 million.

Out of all FHA mortgages taken to buy homes, 80 percent were taken by first-time home buyers who took advantage of FHA’s lower down payment requirements compared to other lenders. FHA allowed first time home buyers to pay only 3.5 percent while private lenders required at least 10 percent for conventional home loans.

FHA however tightened its loan standards, requiring borrowers with credit scores lower than 500 to make a ten-percent down payment to reduce foreclosure house rates.

With the increase in FHA loans, FHA has captured over 23 percent of the home loan market, marking a significant increase from the only 3-percent share in 2006. With other lenders rejecting a lot of home loan applications, FHA-guaranteed loans contributed significantly to the continued operation of the residential lending market.

According to Moody’s economist Mark Zandi, FHA loans enabled the housing market to float and not fall to a level it could not recover from.

Many borrowers also turned to FHA loans because of the collapse of subprime lenders, which provided easy home loans during the housing boom even without proper financial documentation.

Additionally, FHA increased its conforming loan limits from $362,790 to a high of $729,750 in pricier markets such as Boston and New York. Another factor that greatly increased FHA loans is the federal tax credit for first time home buyers.

According to FHA Commissioner David Stevens, the credit scores of home loan applicants have improved compared to applicants in the past years. Borrowers who took out FHA loans recently have an average credit score of around 690, much higher than the average of 630 in 2007. However, Stevens is still concerned about the rate of FHA mortgages ultimately going into foreclosure house listings.

This prediction is also supported by a study held by credit rating firm Fitch Ratings Ltd. on the cure rate for delinquent mortgages. Cure rate refers to the percentage of delinquent home loans restored to regular and updated status each month.

Fitch reported that the percentage of delinquent homeowners who have failed to restore their mortgages to current status has increased in July. The cure rate for prime mortgages had sharply dropped from the average of 45 percent cure rate during the seven-period 2000 to 2006 to only 6.6 percent in July.

For Alt-A loans, the cure rate has also sharply dropped from 30.2 percent to 4.3 percent. For subprime home loans, the cure rate fell from 19.4 percent to 5.3 percent.

Fitch managing director Roelof Slump said that the cure rates had record declines.

Barclays Capital said that foreclosures will continue to rise in many areas across the country as homeowners fail to catch up on their loan payments. The firm’s 1.15 million projection for the middle of 2010 is a substantial increase from the 688,000 foreclosures posted in July.

Analysts said that the cure rates declined despite efforts by President Barack Obama, Treasury Secretary Timothy Geithner, HUD Secretary Shaun Donovan and lawmakers to pressure lenders to intensify their loan modification efforts. Their efforts were even stepped up by mandatory mediation and other foreclosure prevention programs launched by state governments.

According to Fitch analysts, the cure rates could have been much lower if there were no federal and state intervention.

In recent months, the major cause for delinquencies and foreclosures was no longer risky unaffordable loans but unemployment.

Nationwide, the unemployment rate in July was little changed at 9.4 percent compared to June, according to the Labor Department. But it represented an increase of 3.6 percentage points from July last year. The jobless rate increased in 26 states, compared to June, and decreased in 17 states and Washington, D.C. Seven states reported no rate change.

Lastly, the Fitch study included around $1.7 trillion of home loans packaged into securities, representing about 16 percent of all outstanding mortgages in the U.S. It did not include loans guaranteed by federal agencies and loans not bundled into securities.

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The bank explained that the continued drop in house prices has been driving the continued increase in bank repo homes as borrowers walk away from their underwater mortgages.

In June, Deutsche Bank predicted that home prices will fall by 14 percent in the first quarter of 2011 in at least 100 metro areas, bringing the total home price decline to 41.7 percent.

The projected increase in the volume of underwater mortgages to about 48 percent by 2011 marks a staggering increase from the 26-percent share on March 31 this year.

Deutsche Bank also said that conforming mortgages which met Freddie Mac and Fannie Mae lending guidelines and which comprise most of the mortgages originated will be battered most by home price declines. Prime conforming mortgage loans comprise around 67 percent of all mortgages and usually are less risky than other types of loans because these are given to borrowers with high credit scores and complete and qualified financial documentation.

Of all conforming home loans, about 41 percent shall be underwater during the first 3 months of 2011, an increase from the 16 percent share in the first 3 months of 2009.

Borrowers who took out risky home loans during the boom years will also be hit hard in 2011 because they are suffering the biggest erosion in home value and in equity, according to Deutsche. Of all subprime mortgages, 69 percent will become underwater in 2011, a substantial increase from the 50-percent share in March.

Of all option adjustable-rate mortgages, 89 percent will become underwater in 2011, another substantial increase from the 77-percent share in March. Option ARMs allow borrowers to make very low payments during the first years of their loan terms.

Deutsche analysts Ying Shen and Karen Weaver made the projections despite indications of improvements in the housing market, as increases in home prices were reported in many areas of the country after 3 years of price declines. They said that the next wave of house price declines will affect prime mortgage borrowers the most.

According to the analysts, around 90 percent of all mortgages in Las Vegas and in other cities in California and Florida will be underwater by 2011 and the states that will suffer negative equity the most will be California, Florida, Nevada, Arizona, Ohio, Illinois, Michigan, Massachusetts, Wisconsin and West Virginia.

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Dugan warned that reverse mortgages have the same characteristics as risky types of subprime loans, adding that the experience with subprime lending, which resulted to the repo properties crisis, should be enough to show the association between safety, soundness and compliance.

He encouraged regulatory agencies to make sure that interagency guidelines being developed are sufficiently robust that they could provide ample protection to homeowners. He said that his office would monitor national banks to make sure that they comply with the guidelines and existing relevant regulations.

However, he pointed out that guidelines alone will not be enough to protect consumers from reverse mortgages and the effects of the growing number of repo properties. He believed that definitive regulatory standards should be adopted to ensure consumer protection against risks posed by reverse mortgages.

Dugan said that OCC is prepared to adopt regulatory standards even if the rules that his office advocates cover only reverse mortgage loans by national banks.

Reverse mortgages are loans that offer line of credit or source of income to older homeowners by permitting them to use the equity on their properties without moving out or selling the houses.

Nontraditional underwriting process is adopted on reverse mortgages because homeowners are not required to make any repayment until they die, fail to pay their property taxes, maintain the property or moved out of the house permanently.

In the event that the property is sold in order to pay the loan, borrowers are not responsible for the amount in excess of the market value of the property. Whatever equity is left on top of the loan amount due legally belongs to borrowers or their heirs.

The Federal Housing Administration of the Department of Housing and Urban Development insures about 90 percent of the total reverse mortgages in the country, which is popularly known as home equity conversion mortgages (HECMS).

Dugan predicts that several factors such as the growing number of repo properties, job losses, declining retirement account values and low pension benefits will drive the demand for reverse mortgage loans as older homeowners will use their home equity to increase their income.

Lee County Emergency Management chief of planning Gerald Campbell said that these foreclosed properties pose a substantial threat to people’s lives and other homes. Residents of the county could still remember the damage and danger brought about by Hurricane Charley which struck the area in 2004.

The hurricane, with winds of 150 miles per hour, torn off roofs of hundreds of houses in the area. And the natural disaster happened during the peak of the construction industry when abandoned properties were still few.

Now, if a hurricane comes along, the damage is expected to be insurmountable with thousands of abandon and vacant properties and partially built houses in a state of deterioration.

The foreclosure problem has been hounding the region since 2007 as investors and borrowers abandon their properties worth below their original market value. In April, the median single-family home price was $85,000, representing a 73 percent decline from the December 2005 peak of $322,300.

To lessen the threat pose by foreclosed properties, especially during a storm, building inspectors in the region have intensified their enforcement efforts to ensure safety. For example, the Department of Community Development in Lee County has opened nearly 1,100 violation cases in Lehigh Acres where foreclosure rate is high.

Joan LaGuardia of the Department of Community Development explained that when building inspectors discovered foreclosed homes that pose a threat, they do not waste time in cleaning them up and making them safe. She added that the department has only 10 days of due process for each abandoned and vacant foreclosed home.

For the meantime, the county picks up the bill for cleaning these foreclosure properties. However, it files a lien so that if the property gets sold, it would be able to collect payment for the cleaning service.

Meanwhile, Cape Coral code compliance division manager Frank Cassidy said that his inspectors are making sure that foreclosed properties in the area will not be a danger to anyone.

Once inspectors have verified that a home is on bank foreclosure list, they will contact the owner and within 48 hours, action will be taken by the city to make sure that the structures will not be a problem.

The bank will hire 200 employees for its downtown Milwaukee office in Wisconsin. Early this year, the bank reduced its downtown Milwaukee workforce by 270 employees. But with the increasing number of foreclosure filings, the bank had difficulty dealing with a big volume of loan modification requests from distressed homeowners nationwide.

According to Christine Holevas of Chase, the bank has new employees working at its Milwaukee office. These employees are focused on negotiating new loan arrangements with delinquent homeowners.

The bank is currently servicing a portfolio of about $1.5 trillion. In September last year, the bank added billions in its mortgage business when it acquired Washington Mutual.

In greater Milwaukee, Chase Bank has nearly 1,400 employees and about 950 in Milwaukee. According to Holevas, the bank, which is a unit of JPMorgan Chase and Co., operates 41 branches in the area.

The bank’s new hires will include negotiators, supervisors, loan specialists and underwriters. Holevas said that some of the new hires have already started their training.

In December 2008, the bank cited decreasing activity in the home-equity lending market as reason for reducing the number of its workforce in its home equity servicing unit in downtown Milwaukee. Holevas said that some workers who were dismissed in early February of this year were rehired for the loan mortgage servicing operation.

Holevas explained that bank officials prefer hiring employees in Milwaukee because they liked their work ethic. However, she said that she could not say how long the new jobs would last, adding that the bank’s employment needs are dependent on changes in the business and customers’ needs.

Chase is not the only bank in the country that boost the number of its staff to handle the increasing number of troubled loans. Banks such as M&I Marshall and Ilsley have implemented moratoriums on foreclosures as they try to modify loans to make payments affordable and help homeowners avoid repossession properties. M&I’s moratorium on repossession properties is set to expire on June 30 this year.

And some real estate barometers such as lessening inventory, rising buyer competition, increasing building confidence and slowing home price drop are contributing to the idea that the housing market could soon be rebounding.

However, some industry experts pointed out several issues that could debunked the turnaround theory. A healthy real estate market features a balanced supply and demand. Experts noted that there are several factors that may weaken demand and cause a surge of supply in the market.

On the demand issue, massive layoffs, high home prices and the credit crunch contribute to the reduction in the number of potential homebuyers.

On the supply issue, several factors are expected to trigger a second wave of foreclosures that may continue to expand the inventory. These factors include the increasing number of homeowners whose properties are worth less than the total mortgage they owed, foreclosure moratorium expiration, soft selling of luxury homes, increasing delinquencies in Alt-A and prime loans and pending resetting of option adjustable rate mortgage loans.

Some experts claimed that the increasing unemployment rate will be the main driver of the second wave of foreclosures. People who lost their main source of income do not have any choice but to miss on their mortgage payments.

Unemployment, according to experts, may also create a glut of foreclosed properties on the market as those who lost their jobs will most likely lose their houses too.

Meanwhile, principal at the Field Check Group consulting firm, Mark Hanson said that about 50 percent of buyers in the real estate market are first-timers, while investors accounted for a third of the purchases. This leaves about 15 percent of homebuyers who would opt to buy a property that is not foreclosed.

On the other hand, with the credit crunch, people who want to buy a home will find it difficult to find someone to give them a loan. Because of the current financial crisis, lending companies have become strict on their requirements, including a 20 percent down payment and good credit standing.

These leave many potential borrowers unable to find a mortgage to allow them to buy houses that may lead to the end of repossessed home crisis.

The home price S&P/Case-Shiller index dropped by 18.4 percent compared with figures from last year and a decline of 18.6 percent in February. Meanwhile, a market study showed that consumer confidence increased to a half-year high this month.

Declining mortgage rates and home prices have made properties affordable, softening the drop in sales and preventing the housing market slump from further deterioration. However, the increasing unemployment and unabated foreclosures will continue to put pressure on values of properties and prevent the housing market from doing a fast recovery.

Herrmann Forecasting chief economist John Herrmann pointed out that things in the housing market are starting to stabilize while the inventory of homes still on the market is showing signs of lessening.

Meanwhile, the Conference Board is expected to report an improvement in the consumer confidence index, with a 43 percent rise this month from 39.2 in April. The May consumer confidence rate was the highest since November last year.

On the other hand, the drop in home prices due to the flood of foreclosure homes in the country has driven resales in the housing market. According to economists, the National Association of Realtors data showed that existing home sales increased by 4.66 million in April.

The association said that distressed properties accounted for about 50 percent of home resales in March, while first-time homebuyers acquired 51 percent of properties in the same month.

In April, filings for repossessed homes in the country increased further for two consecutive months, with a total of 342,038 homeowners receiving notices of default or auction. The figures showed that one out of 374 homeowners received a foreclosure filing.

However, despite the rise in the number of repossessed homes, some companies are optimistic that property demand is stabilizing.

According to Robert Toll, chief executive officer of Toll Brothers Inc, deposits for new homes increase in the company’s fiscal second quarter compared with figures from a year ago.

He added that the average home sale price declined to $563,000 in the company’s fiscal second quarter as filings for repossessed homes rose again to another record high.