IRVINE, Calif. (Legal Newsline)-Laws in California and Massachusetts have had a direct impact - both positively and negatively -- on foreclosures in each of those states, according to a company that tracks activity across the country.

While foreclosures in September declined nationwide by 12 percent from the record high reported in August, the total activity still exceeds foreclosures in the same month in 2007 by 21 percent, according to RealtyTrak Inc. Chief Executive James Saccacio.

RealtyTrak Inc. - which tracks more than 2 million homes in 2,200 counties across America - released its third quarter report on Wednesday, data considered the most exhaustive in the country.

The data shows that the scattershot of state laws, legal maneuvers and changes in loan policy have proven effective in temporarily reducing foreclosures.

But Massachusetts now casts an ominous shadow for those touting a temporary moratorium on foreclosures. Foreclosures in that state jumped 465 percent from August to September, according to Saccacio, after declining in the summer months.

"That temporary lull happened after a new law took effect in May," Saccacio said, "requiring lenders to give a 90-day right-to-cure notice before initiating foreclosure. But in September, about 90 days after the law took effect, initial foreclosure numbers jumped back up close to the level we were seeing earlier in the year."

San Diego City Attorney Mike Aguirre, who sued Countrywide, Wachovia and Washington Mutual for alleged predatory lending practices, had hailed the Massachusetts 90-day moratorium law as the model for settlements with lenders.

"We modeled our case on exactly that case in Massachusetts," Aguirre said in an earlier interview with Legal Newsline. "I've done this kind of work for 30 years, and people are saying this is the way to go. It's not my idea, but I've following the state of Massachusetts."

But Aguirre said a foreclosure freeze has to be followed with the tedious work of reworking individual loans back to their fair market value.

"It's a whole workout. We need to pause and work out the whole solution," he said, noting that recent legal victories have pressured lenders into putting more effort into reworking loans.

The Massachusetts law is also a model for the Federal Deposit Insurance Co.'s efforts to reduce foreclosures among IndyMac customers, following the FDIC's taking over control of that lending institution.

Congressional Democrats have supported the FDIC's approach for the U.S. Treasury Department as it buys billions in troubled mortgage debt as part of the $700 bailout recently approved by Congress.

On Thursday, FDIC Chairwoman Sheila Bair told the Senate Banking Committee that the government must set aggressive standards for modifying mortgages into more affordable loans coupled with loan guarantees to the banks that do so.

The FDIC and the Treasury Department are reportedly close to announcing such a loan-guarantee program that Bair believes will convert failed loans into long-term affordable loans.

Other laws have impacted, at least temporarily, the rate of foreclosures, according to the RealtyTrak report. A Senate bill in California that requires lenders to contact homeowners 30 days before filing a notice of default took effect in early September.

"In September," Saccacio said, "we saw California notice of defaults drop 51 percent from the previous month, and that drop had a significant impact on the national numbers given that California accounts for close to one-third of the nation's foreclosure activity each month."

North Carolina, which passed a law similar to California that requires a 45-day notice, also saw a temporary drop in foreclosures, according to Saccacio.

Overall, foreclosure filings were reported on 265,968 properties in September, according to the RealtyTrak report, 60 percent of which came from six states - California, Florida, Arizona, Ohio, Michigan and Nevada. California alone accounts for more than 27 percent of the nation's foreclosures.

One in every 82 housing units in Nevada is involved in foreclosure proceedings, five times the national average.

The data also showed that more than 81,000 homes nationwide were lost to foreclosure in September.

Better news may be just ahead.

The Federal Government's Hope for Homeowners rescue bill took effect on Oct. 1, which will allow some facing foreclosure to refinance their loans backed by the Federal Housing Authority. Coupled with the massive bailout, which allows for the Treasury Department to buy up toxic mortgages backed by bad loans, optimism for the coming months remains.

Some investors believe the last of the sub-prime loans will be resolved by the middle of 2009, which could spell the end of the housing crash. But the glut of undervalued homes on the market will likely continue to affect home sales and values, analysts predict.

In early October, attorneys general from Illinois and California settled their predatory lawsuits against the nation's largest mortgage company, Countrywide Financial Corp., which includes extra personnel dedicated to reworking bad loans.

Aguirre, who has not yet settled his case with Countrywide, said the workouts have moved front and center in the fight to stop the rise of foreclosures. He wants assurances that enough mortgage counselors will be hired to rewrite the bad loans before he signs off on the Countywide settlement, he said.