U.S. foreclosure activity for May ebbed from April's record, but mortgages still failed at a staggering pace as President Barack Obama's rescue programs had not had time to fully take root, RealtyTrac said on Thursday.

Foreclosure filings dipped 6 percent in the month but increased 18 percent from May 2008, marking the third highest month on record.

There were almost one million foreclosure filings in a three-month period, and that's simply unprecedented, Rick Sharga, senior vice president at RealtyTrac in Irvine, California, said in an interview.

Temporary freezes on foreclosure activity ended in March. Failures of many seriously delinquent loans that were put on hold during those moratoria have been thrust back into the foreclosure cycle.

One in every 398 households with loans got a foreclosure filing in May. Filings, which include notices of default and auctions, were reported on 321,480 properties last month.

Stemming foreclosures is seen critical to bolstering home prices, consumer confidence and the recessionary U.S. economy.

Bank repossessions, known as real-estate owned or REOs, rose in May and should spike in coming months because the moratoria ended, RealtyTrac said.

OBAMA PLAN NEEDS TIME

The administration's plans to ease loan modifications and refinancing were detailed in early March and haven't been implemented long enough to derail foreclosures.

The hurdles are high. Unemployment reached a nearly 26-year peak in May and mortgage rates have leaped a percentage point from their spring lows to more than 5-1/2 percent.

One of the cures to this problem is enough buying activity to eat up the inventory of distressed properties, Sharga said. If mortgage rates go up to where people decide to wait out the market again, that's just going to add to the inventory numbers and put more downward pricing pressure on all homes.

RealtyTrac forecasts about 4 million foreclosure filings will be made this year on about 3.1 million households with loans. Last year, there was a record 3.1 million filings on about 2.4 million households.

In a more typical year, Sharga said there would be around 800,000 filings on 550,000 households.

When you have a glut of inventory and downward pricing pressure that does tend to push properties into foreclosure, said Sharga.

States where sales and prices soared most in the five-year housing boom earlier this decade remained the hardest hit.

Nevada stayed at the top of the foreclosure rate rankings by state, with one in every 64 housing units getting a foreclosure filing. California, Florida and Arizona, Michigan, Georgia, Colorado, Idaho and Ohio were the other states with the highest foreclosure rates.

Ten states, led by California, accounted for almost 77 percent of total number of foreclosure actions in May.

We need to give the administration's programs a little bit of time to gain traction, Sharga said. If unemployment continues to worsen, all bets are off on foreclosure rates.

(Editing by Chizu Nomiyama)

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