NEW YORK (Reuters) - U.S. foreclosure activity fell in November for the fourth month running, but improvement from July's record high came from loan modification programs that may fail to permanently remedy many failing mortgages, real estate data company RealyTrac said on Thursday.
Foreclosure filings -- including notices of default, auction and bank repossession -- dropped 8 percent last month and were down 15 percent from the July peak.
Still, filings were reported on more than 300,000 homes for the ninth straight month, having never been that high in any month before this year, and were 18 percent higher than a year ago.
One in every 417 households with a loan got a foreclosure filing in November.
While November foreclosure actions were the lowest since February, government efforts to compel lenders to modify loan terms likely mask ongoing troubles, said Rick Sharga, senior vice president of Irvine, California-based RealtyTrac.
Some 3.2 million properties will get foreclosure notices this year, up from the prior record 2.3 million last year.
"Ultimately, you'll probably see about half of those properties go back to the banks," he said in an interview. "We're not terribly optimistic."
A U.S. Treasury-led effort to slow the pace at which distressed mortgage-holders are being tossed out of their homes was called "an abject failure" on Tuesday by lawmakers.
The Treasury has vowed to be more aggressive with banks in efforts to smooth and speed loan term changes through the $75 billion Home Affordable Modification Program (HAMP).
It will take months to see how many of the loans in trial modifications will become permanent, and home many of the fixes stick or just delay inevitable foreclosures.
RealtyTrac also noted that typically lenders and servicers slow foreclosure proceedings in the final weeks of a year around the holidays.
Meantime, double-digit unemployment keeps derailing more homeowners from making timely loan payments.
"I don't think we've seen the underlying conditions improve, which suggests that we are seeing another build-up of loans that should be in foreclosure just waiting to hit," Sharga said.
Unemployment, underemployment, a lack of available credit and a wave of loans adjusting to payments that borrowers cannot afford all persist. These conditions offset record low mortgage rates and deep home price discounts -- 30 percent on average -- to thwart a sustained rebound from a three-year housing crash.
Home sales have been rising, helped by a first-time buyer tax credit that was extended into next year and a new move-up buyer tax incentive.
Economists and realtors caution that another flood of foreclosures next year could exert pressure anew on home prices.
The tax credit and modification programs provide "a welcome respite for the real estate industry, but a full recovery will only come when unemployment recedes to normal, healthy levels and when availability of credit reaches a more rational balance between the extremes of the past few years," James J. Saccacio, RealtyTrac chief executive, said in a statement.
Nevada, Florida, California and Arizona had the highest state foreclosure rates last month. All of these states led the housing boom as well as the bust.
Idaho, Michigan, Illinois, Utah, Maryland, and New Jersey were other states with rates of loan failures that were among the 10 highest for U.S. states.
For the second month in a row, California, Florida, Illinois and Michigan accounted for 52 percent of the total U.S. foreclosure activity.
"There's an old expression that the best way to eat an elephant is one bite at a time," Sharga said. "Modifications are one bite, the short-sale initiative Treasury announced is another bite ... and gradually we'll whittle this thing down to size.
(Additional reporting by Glenn Somerville in Washington; Editing by Andrew Hay)