UPDATE 1-Foreclosures slow but housing market still hurting

* Foreclosure pace slows due to servicing probe

* Amount of delinquencies improve
(Adds byline and more details)

By Dave Clarke

WASHINGTON, March 31 (Reuters) – Home foreclosures slowed
in the fourth quarter, but that is likely to be a brief
reprieve once banks move more aggressively back into this area
following a review of their mortgage servicing practices,
according to a report released by U.S. banking regulators on
Thursday.

A group of 50 state attorneys general and about a dozen
federal agencies are probing mortgage servicing problems that
came to light last year, including the use of “robo-signers” to
sign hundreds of unread foreclosure documents a day.

In the final months of 2010 some big lenders, such as Bank
of America Corp (BAC.N: Quote, Profile, Research), briefly suspended foreclosure
proceedings as they reviewed their methods for dealing with
troubled borrowers.

New and completed foreclosures are expected to increase in
the coming quarters with this pause having ended, according to
the report from the Office of the Comptroller of the Currency
and the Office of Thrift Supervision. The OCC regulates
national banks and the OTS regulates the national thrift
industry.

In the fourth quarter, completed foreclosures dropped by
almost 50 percent to 95,067, while newly initiated foreclosures
fell by almost 8 percent to 352,318.

Foreclosures in the pipeline actually increased because the
number of newly initiated foreclosures was larger than those
completed in the fourth quarter.

The inventory of foreclosures being processed jumped more
than 7 percent to 1.3 million in the fourth quarter.

What to do with borrowers who can no longer afford their
homes is a raging political and policy debate.

The state attorneys general are facing off with banks over
changes to their mortgage servicing processes and whether
principal writedowns should become a major part of efforts to
keep borrowers in their homes.

The two groups met on March 30 to kick off negotiations
that could be lengthy and contentious.

The banks at the meeting were Bank of America, JPMorgan
Chase & Co (JPM.N: Quote, Profile, Research), Citigroup Inc (C.N: Quote, Profile, Research), Wells Fargo & Co
(WFC.N: Quote, Profile, Research) and Ally Financial Inc (GKM.N: Quote, Profile, Research).

Republicans want to end the Obama administration’s primary
foreclosure prevention program — the Home Affordable
Modification Program (HAMP) — arguing it has been a failure.

Earlier this week, the House of Representatives voted
252-170 to terminate HAMP. But the bill is unlikely to clear
the Democratically controlled Senate.

Thursday’s report shows HAMP loans are performing better
than separate industry efforts to keep borrowers in their
homes.

OCC and OTS officials noted, however, that the report
paints a limited picture of the program. The data only includes
borrowers who made it to the end of the process and had their
mortgages modified, and does not include participants who
dropped out.

HAMP is also set up in such a way that it likely attracts
people most able to keep making payments, while industry
programs cover a wider swath of troubled homeowners, the
officials said.

In a sign of good news for the housing market, the total
number of serious delinquencies, those 60 days or more past
due, fell 8.2 percent to 1.76 million in the fourth quarter,
according to a report.

The OCC and OTS Mortgage Metrics Report provides
performance data on first-lien residential mortgages serviced
by national banks and federally regulated thrifts. The
mortgages in this portfolio comprise about 63 percent of all
mortgages outstanding in the United States.
(Reporting by Dave Clarke; editing by Lisa Von Ahn and Andre
Grenon)

UPDATE 1-Foreclosures slow but housing market still hurting