Credit ratings agency DBRS expects the rate of foreclosures to continue to rise for the remainder of 2011, but investors in the residential mortgage-backed securities that rely on these properties for collateral will have some time before losses kick in. DBRS expects that real losses to the bond investors will more likely come in 2013. “This is due to the length of time that it is currently taking to complete the foreclosure process, particularly in judicial states, which is averaging 24 months because the county clerks are battling their own backlogs due to budget cuts and mandatory furloughs,” said DBRS analyst Kathleen Tillwitz in an email alert. During the housing boom, where new mortgages were financed in the private sector, securitizations were created left and right to provide the necessary capital. Many of those deals are not likely overcollateralized, meaning that when a home drops out of the bonded pool, there is no other collateral to replace the lost income stream. Other loss-mitigation tools, such as mortgage modifications, are not proving to be greatly effective at staving off foreclosure, at least for properties in these particular RMBS pools. Five states accounted for 53% of the nation’s total foreclosure activity in August: California, Florida, Michigan, Illinois and Georgia. And it’s growing. California default notices alone spiked 55% in August, and the number may keep rising in the coming months as mortgage servicers shake off the robo-signing freeze, according to RealtyTrac Senior Vice President Rick Sharga. Other states with foreclosure rates ranking among the top 10 were Arizona, Texas, Ohio, Nevada and Colorado. (Click chart to expand.) “This was even with the majority of servicers using multiple modifications as their primary loss mitigation tool,” Tillwitz said. Write to Jacob Gaffney. Follow him on Twitter: @JacobGaffney

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