WASHINGTON — The word of the year in 2008 could have easily been foreclosures, as homeowners' inability to repay their loans trickled upward and translated into staggering losses for Wall Street and foreign investors, thanks to the practice of selling, pooling and securitizing whole loans into mortgage-backed securities.However, a moratorium on foreclosures in some states, including hard-hit California, has temporarily slowed the foreclosure growth rate.According to real estate data tracker RealtyTrac, in its November U.S. foreclosure market report, foreclosure activity was up 5% from the previous month and 25% from October 2007, but the numbers could have been much worse.Notices of default in California are down 44% from a year ago, thanks to a new California law that took effect in early September that requires lenders to provide homeowners with an extra 30-day notice before filing a notice of default. While California has had the most impact on the national numbers because of its size, other state foreclosure numbers have seen declines after passing legislation designed to extend or forestall the foreclosure process.However, declining foreclosures is perhaps the only bright news to come out of the mortgage market this year.The relationship between foreclosures and plummeting home values came to mirror the classic "chicken and the egg" riddle in 2008, as falling values turned many borrowers upside down on their mortgages and created a stalemate in the mortgage market. Loss of income caused many to walk away from their homes in record numbers, with foreclosures driving home values down even further.On Dec. 15, real estate data tracking firm Zillow.com said U.S. homes lost an estimated $2 trillion in value during 2008, and 11.7 million borrowers are upside down in their mortgages, representing one in seven homeowners. Home values declined 8.4% year-over-year during the first three quarters of this year, the report continued, with Stockton, Calif., losing the most, 32.3% year-over-year, and Merced, Calif., following close behind with 31.2%."This year marked the acceleration of the market correction and is likely to end with the eighth consecutive quarter of declines in home values," Stan Humphries, Zillow's vice president of data and analytics, said in a statement."In general, homeowners in most areas we cover are struggling with foreclosures pouring into the market, large amounts of negative equity and dropping home values. On the positive side, in the third quarter, some markets-particularly those hit hardest in the downturn-showed smaller year-over-year declines than in the prior quarter," he said.The Mortgage Bankers Association released a report Dec. 5 that reported the foreclosure rate had reached a record 2.97% during the third quarter, a 76% increase from one year ago. Delinquencies also hit a record high of 6.99%.Combined, the two statistics meant one in every 10 homeowners is past due on their home loan. Not surprisingly, California and Florida were the worst hit, with each state experiencing more than 90,000 new foreclosures during the third quarter. Illinois ranked a distant third, with 27,500 foreclosure starts.The report also stated that one in five subprime loans is now delinquent, another record. Past due prime loans increased to 4.34%.The only silver lining seemed to be in the credit union industry, where, according to data from Callahan and Associates, the nonprofits originated 14.7 million new loans as of Sept. 30, representing more than $200 billion. That 6% increase over third-quarter 2007, along with an overall decrease in mortgage lending nationwide, resulted in credit unions reaching a 3.9% mortgage market share milestone.That increase prompted the CU Housing RoundTable group, led by mortgage CUSO Prime Alliance, the $8.5 billion Boeing Employees Credit Union and Callahan and Associates, to release a white paper in October outlining ways the credit union industry can create a secondary market.The paper's co-authors included Prime Alliance's Dan Green and Nizar Hashlamon; Callahan's Chip Filson and Jay Johnson; Western Corporate FCU's Joe Barron; Sam Inman, CFO of the $1.8 billion Community First Credit Union of Florida; Bill Walker of CMG Mortgage Insurance Co.; and Denise Oullette of Oakmont Advisors LLC.Green said the paper includes several possible strategies, from formalizing mortgage participation programs within existing participation loan networks to a plan to securitize pools of credit union mortgages. It's likely the industry will end up with a combination of a few ideas, he said, with initial programs rolling out as early as second-quarter 2009."If you look at the folks involved, absolutely, we've got people who are very active and passionate about credit union mortgage lending who want to see these things happen," he said.–[email protected]