The Mortgage Bankers Association, which is scheduled to release its national delinquency survey for the third quarter on Thursday, said it has seen some modest improvements in delinquencies this year but still expects significant housing challenges next year. "At the end of the day, unemployment is a drag on the economy," said Steve O'Connor, senior vice president of public policy and industry relations at the MBA, on a conference call with reporters about Hope Now. Hope Now, an alliance of mortgage servicers, investors, counselors and insurers, reported reaching a 5 million milestone in loan modifications earlier in the day. Although record low interest rates remain a silver lining, tight credit standards and some 11 million underwater homes will challenge a housing recovery, he said. The MBA is working with others on national mortgage servicing standards, which O'Connor said will go a long way toward helping at-risk borrowers and stabilizing the housing market. In addition, it has publicly supported enhancements announced Tuesday to the government's Home Affordable Refinance Program allow more underwater borrowers to refinance mortgages held by Fannie Mae and Freddie Mac. The association also has weighed in on the Federal Housing Finance Authority's recent "request of information" on how to dispose of its REO. Its ideas include expanding finance options for local investors, including lifting the moratorium for investors in the Federal Housing Administration’s 203(k) rehabilitation program. It also supports a bulk REO sale program with safeguards to could include a mandatory hold period for investors or a profit-sharing agreement between the investor and the REO seller. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.