Nearly three million homeowners received at least one foreclosure filing in 2009, setting a record for the number of people falling behind on their mortgage payments, according to RealtyTrac, an online marketplace for foreclosure properties, and its Foreclosure Market Report.

One in 45 households -- or 2,824,674 properties nationwide -- were in default last year, RealtyTrac reports. The number is 21% higher than in 2008 and more than double 2007's total. The dramatic increase occurred despite efforts, such as the Home Affordable Modification Program, to reduce foreclosure filings.

Filings peaked in July with more than 361,000 homes receiving notices. After that, filings dropped four straight months. Much of that is the result of the government-led efforts to modify loans to make them affordable, though it is still unclear whether the efforts have forestalled or just delayed foreclosure, according to RealtyTrac. By early December more than 680,000 borrowers had gotten temporary workouts but only a few thousand had been permanently modified. "As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans," says RealtyTrac CEO James Saccacio.

That leaves Saccacio a bit concerned about the future. "In the long term, a massive supply of delinquent loans continues to loom over the housing market," he says. "And many of those delinquencies will end up in the foreclosure process in 2010."

The increase in foreclosure filings - which include default notices, scheduled foreclosure auctions and bank repossessions - can create opportunities for collection shops and lenders. Many servicers and collection agencies tell Collections & Credit Risk they have been adding collectors and earmarking training resources to better handle accounts that continue flowing from the mortgage business. Many employees previously in loan underwriting, hired when credit was flowing, have been taught to collect the loans they once issued.

At the same time, the crushing amount of collections to be handled has pushed some lenders to outsource a portion of the growing volume of work. Lenders seem to favor sending out early-stage collections, according to Collections & Credit Risk research. They prefer to keep actual defaults and foreclosures in-house to nurture a relationship with borrowers to get at least some return.

In the RealtyTrac report, there was at least one bright spot: the number of homes actually repossessed was 871,086, up just 1.1% above 2008's total, in spite of the 21% increase in filings. "That was driven primarily by short-term factors: trial loan modifications, state legislation extending the foreclosure process and an overwhelming volume of inventory clogging the foreclosure pipeline," Saccacio says.

The four states with the most foreclosure filings - California, Florida, Arizona and Illinois - accounted for 50% of the nation's properties receiving notices. Nevada recorded the highest rate of foreclosures, at 10%, followed by Arizona, at 6.1%; Florida, 5.9%; and California, 4.75%.

But some states where foreclosure hit hard early are improving. Indiana foreclosures fell by 9.9%, Ohio by 10.5% and Rhode Island by 23.6%.

To comment on this article, contact Darren Waggoner at or 815.463.9008. Your feedback may help shape our ongoing coverage of the mortgage market.

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