Foreclosure numbers tumble in November, but bad news looms

— -- Monthly foreclosures could reach record levels again after the New Year — despite a dip last month.

Filings dropped 7% in November from October, partly due to a moratorium on foreclosures implemented before the Thanksgiving holiday, according to a report Thursday from RealtyTrac. Reasons behind the recent decline:

•New laws. Some states passed legislation that makes lenders do more to avoid foreclosures or extend the process leading to foreclosure. In California, for example, lenders are now required to contact borrowers at least 30 days before filing a notice of default. In North Carolina, a similar law gives homeowners an extra 45 days before a foreclosure is initiated.

•More loan modification programs. More lenders are willing to modify mortgages to stave off foreclosures. Millions have benefited. Mortgage workouts have allowed more than 2.3 million homeowners to avoid foreclosure since July 2007, according to Hope Now, a private sector alliance of mortgage servicers, counselors and investors.

•Moratoriums. Freddie Mac and Fannie Mae, the largest holders of mortgages, in November said they will halt some foreclosures through Jan. 9 in an effort to delay or prevent up to 16,000 foreclosures.

Some private lenders, such as Webster Bank in Connecticut, are doing the same.

Also, Fannie Mae announced this week that homeowners who make their mortgage payments on time but who are struggling financially will be eligible for mortgage modifications. Previously, borrowers had to have missed three payments.

The dip in foreclosures is the first good news in some time, says economist Brian Bethune of IHS Global Insight. But foreclosures may rise next year, because many loan modifications only delay defaults. More than half of homeowners who received loan workouts in the first half of 2008 are already behind on their new loans again, says the Office of Thrift Supervision.

"Moratoriums and state laws can slow down the incidence of foreclosure, but none of them are curing the patient," says Rick Sharga at RealtyTrac. "The patient is still dying. I'm anticipating a significant spike in (foreclosure) activity in January."