American homeowners continue to show an extreme amount of financial stress, with nearly 280,000 properties receiving foreclosure notices last month, according to data released today by RealtyTrac. That represents a 25 percent increase over the same time last year, suggesting that the foreclosure crisis is far from over, despite many high-profile efforts to help people keep their homes.

Just this week, lender Citigroup said it would modify loans for financially troubled borrowers, and the Federal Housing Finance Agency (FHFA) announced a streamlined mortgage modification program for loans owned or guaranteed by Fannie Mae or Freddie Mac. Under the FHFA plan, borrowers who had missed at least three payments could ask servicers for a loan modification that would result in monthly mortgage payments no higher than 38 percent of their gross household income. JPMorgan Chase and Bank of America have also said they are willing to review and revise mortgages that they own.

Meanwhile, states have been turning to legislation to attempt to slow the pace of foreclosures among their residents. California in September approved legislation that requires lenders to contact homeowners and discuss workout options prior to beginning the foreclosure process. Gov. Arnold Schwarzenegger seems to want to do even more and recently proposed a 90-day moratorium on foreclosures in the state. In Maryland, Gov. Martin O’Malley last week announced a deal with lenders and services that establishes a 60-day temporary moratorium on the foreclosure process (and the fees and penalties associated with it) for homeowners at risk of losing their homes. 

But Rick Sharga, senior vice president at Irvine, Calif.-based RealtyTrac, told BUILDER today that such efforts simply aren’t the answer. “It isn’t that these delaying tactics are bad; it’s just that it doesn’t solve the problem,” he said. “If someone’s mortgage payment is going to reset from $2,000 a month to $3,000 a month, and the value of their home is down 20 percent, things are still not going to be any better in 30, 60, or 90 days. These [delays] need to be integrated with other solutions, or otherwise they are just masking the problem.”

Sharga said that California, where foreclosure activity appears to have decreased 18 percent to 57,000 filings, qualifies as such a case. “The new law made what has been a really transparent situation into one where the numbers are opaque,” he said. “The problem is worse than it looks.”

Other former hot housing markets also made their customary appearance on RealtyTrac’s monthly list. In Nevada, nearly 15,000 properties received foreclosure filings in October, which means one in 74 homes received such a notice last month. In Arizona, that figure dropped (relatively) to one in 149, or 18,000 properties. Florida stayed close, with a rate of 1 in 157 homes receiving a foreclosure filing, or 54,000 properties.

Nationally, one in 452 American homes received a foreclosure notice in October. Las Vegas notched the highest foreclosure rate for metropolitan areas, with 1 in 62 homes.

Such incredibly high figures are part of the reason why the foreclosure crisis seems to be growing, not abating, Sharga said. “The challenge for everybody involved in this is just the sheer volume of it. At the close of this year, we will have 3 million U.S. households in some state of foreclosure. That’s twice what we had at the end of last year. [Lenders and servicers] are just buried.”

At the same time, Sharga said that lenders need to take decisive action to address the situation. “Many of these loans are structurally unsound. What we really need is wholesale loan modification,” where interest rates, contract terms, and principal are adjusted, he said. “It is unprecedented in this industry to do such a thing, but it is the only way to get people back into mortgages that they can afford.”

Alison Rice is senior editor, online, at BUILDER magazine.

Learn more about markets featured in this article: Las Vegas, NV.