Nov. 1 (Bloomberg) -- U.S. home foreclosures doubled in the third quarter from a year earlier as subprime borrowers failed to make higher payments on adjustable-rate mortgages, RealtyTrac Inc. said.

There were 635,159 foreclosure filings in the quarter, or one for every 196 households, including default notices, auction notices and bank repossessions. California, Florida and Ohio accounted for 44 percent of the total, and Nevada had the highest foreclosure rate at one for every 61 households. Forty-five of 50 states had increases.

``Given the number of loans due to reset through the middle of 2008, and the continuing weakness in home sales, we would expect foreclosure activity to remain high and even increase over the next year in many markets,'' James Saccacio, chief executive officer at Irvine, California-based RealtyTrac, said today in a statement. The company sells U.S. foreclosure information and has a database of more than 1 million properties.

Foreclosures are deepening the U.S. housing recession by pushing more homes onto a market where sales and prices are falling. There's a 10-month supply of unsold homes, the highest in at least eight years, which may swell as transactions are set to drop to the lowest in at least five years.

The ``absurd'' number of subprime and adjustable-rate mortgages that are defaulting suggests a greater number than usual of foreclosed properties will eventually go back to banks or be sold at auction, Rick Sharga, executive vice president of marketing at RealtyTrac, said in an interview. Historically, 40 percent of homes are lost.

Foreclosure filings in the third quarter increased 30 percent from the previous three months.

Rising Rates

Interest rates will rise this month for borrowers holding $46.7 billion of U.S. mortgages, according to data compiled by Credit Suisse Group in New York. Subprime borrowers, who have poor or incomplete credit histories, account for $28.5 billion of those mortgages, Credit Suisse said.

Home prices in 20 U.S. metropolitan areas declined for an eighth straight month in August, according to the S&P/Case- Shiller home-price index, and lenders have tightened mortgage standards, making it harder to refinance or sell a home. Existing-home sales will likely fall to a five-year low, and new-home sales may drop to a 10-year low, the Chicago-based National Association of Realtors said last month.

About 1.3 million subprime mortgages will be in foreclosure from Sept. 30 through Sept. 30, 2009, including actions already under way, Credit Suisse Group analysts wrote in an Oct. 26 report. Countrywide Financial Corp. in Calabasas, California, the largest U.S. mortgage company, said foreclosures doubled in September. August and September had the most filings since RealtyTrac began reporting in January 2005, Saccacio said.

Subprime Borrowers

Adjustable-rate mortgages to subprime borrowers accounted for 7.3 percent of all home loans and 44 percent of all new foreclosures, the Mortgage Bankers Association in Washington said. The monthly payments on adjustable loans can rise by 50 percent or more, sometimes doubling in size, RealtyTrac's Sharga said.

About 2.91 million subprime borrowers have adjustable-rate mortgages, some 90 percent of which will have reset at higher interest rates by the end of 2008, according to San Francisco- based First American LoanPerformance, the research unit of the biggest U.S. title company.

The third-quarter filings were reported on 446,726 properties, meaning that some properties had multiple filings, Sharga said. ``We think 1.5 million households will get at least one filing this year, and we'll have well over 2 million filings,'' he said.

Late Payments

The foreclosure process typically begins when a borrower is more than 90 days late on mortgage payments and the lender files a notice of default. If the borrower doesn't pay what's owed, the property goes to auction. If bids don't reach that amount, the lender takes ownership of the house.

Many borrowers with adjustable-rate loans have already refinanced and aren't in danger of losing their homes, said John Robbins, chief executive officer of American Mortgage Network in San Diego and former chairman of the Mortgage Bankers Association of America.

``Half of loans going to foreclosures never go completely through the process, and every major servicer has a dedicated group that does nothing but loan modifications,'' Robbins said by telephone. ``If you take that, and the Fannie Mae and Freddie Mac and FHA programs for subprime borrowers, there's going to be an impact.''

The U.S. Federal Housing Administration insures lenders against losses on residential mortgages.

Speculators in Florida

California, with some of the most expensive U.S. homes, had 148,147 filings on 94,772 properties, a 36 percent increase from the second quarter and a nearly four-fold jump from a year ago, RealtyTrac said. Florida, where speculators bet on rising home prices, had 86,465 filings on 60,992 properties, up 50 percent from the second quarter and more than double a year ago.

``In California, it's an affordability issue pure and simple, people overextended to buy homes they couldn't afford,'' Sharga said. ``In Florida and Nevada, the primary reasons are speculative buying and affordability issues in places that had skyrocketing appreciation. The two often go together.''

Michigan had 43,786 filings on 29,655 properties, a 66 percent increase from the second quarter and more than double a year ago. Ohio had 46,818 filings on 35,242 properties, a 28 percent increase from the second quarter and up 137 percent from a year ago.

The data from those states, where the auto industry fired more than 50,000 people in the past 10 years, suggest ``the process is going to later stages of foreclosure with a higher tendency for banks to take back the house,'' Sharga said.

Defaults by U.S. homeowners with private mortgage insurance jumped by 22 percent in September, a report by the Washington- based Mortgage Insurance Companies of America said yesterday.

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net.

Last Updated: November 1, 2007 05:21 EDT