Foreclosures are on the rise as they soared 71 percent in the third quarter, to an average of 8,500 homes a day.

More than 3 million foreclosed homes are expected to be in foreclosure by year’s end. Lenders are taking possession of foreclosed homes quicker than before which means that by year’s end lenders will have more than million homes in their possession.

Rather that working with people to aid their help to save the home, lenders are walking away from it. With distressed prices as of now, this would push home process to even lower levels.

Banks are overwhelmed with the sheer number of troubled mortgages and it made it more difficult for them to work out every loan modification by either reducing interest rate, or changing loan terms.

Many of these homes also have second mortgages attached to them which would involve another lender or another party that needs to be present for negotiation. With over 3 million home being foreclosed lenders do not have time to work out each of these homes.

Main problem is that mortgages are grouped together and sold off to investors. These mortgage-backed securities carry terms that are sometimes hard to renegotiate, so the banks typically service the mortgage by collection payments and passing it to investor.

Those servicing the loan often make more money in foreclosure than renegotiating the loan.

Government is trying to step in and help homeowners. GOP presidential candidate John McCain told CNBC that the government’s top priority should be to buy up these troubled mortgages and allow people to stay in their homes.

“The administration is not doing what I think they should do, and that’s go in and buy out these bad mortgages, give people mortgages they can afford, stabilize home values and start them back up again,” McCain said in a live interview.

“Our position is that is more advantageous to modify the loans and keep the families in their homes,” says David Barr, a spokesman for the Federal Depository Insurance Corporation. “Foreclosures are not good for values of home in the community and if you are an investor, a modified loan provides a continued income stream.”
Banks have stepped up a voluntary efforts to help homeowners with mortgages as HOPE NOW program, claims to have helped avoid 2.3 million foreclosures.

Even when any government program is unfolding to help distressed borrowers to keep their homes, there is no guarantee if homeowner would end up in default again in a few months period.
Foreclosures typically affect 20 homes in a single neighborhood which promptly lowers homes values significantly. With foreclosures on the rise, most homeowners will be or currently are upside down on their mortgages.

Susan Duey represents RateTake Mortgage Loan marketplace. RateTake matches consumers with multiple lenders offering low mortgage rate quotes. RateTake also operates Bill Debt Help portal.