CHICAGO (MarketWatch) -- The percentage of homes somewhere in the foreclosure process fell in the second quarter, the first drop since 2006 and the largest quarter-to-quarter drop since 2005, the Mortgage Bankers Association said Thursday.

Still, the Washington-based group's quarterly delinquency report showed that short-term delinquencies are on the rise -- a foreboding number that could signal more foreclosures in the future.

The percentage of mortgage loans somewhere in the foreclosure process was 4.57% in the second quarter, down from 4.63% in the first quarter. The latest percentage is still up from a 4.3% rate a year ago.

An all-too-common sign of the times.

However, the proportion of home loans one payment behind is now 3.51%, said Jay Brinkmann, the MBA's chief economist. This percentage peaked in the first quarter of 2009 at 3.77%, before falling to 3.31% by the end of last year.

Brinkmann cited a pair of reasons why some mortgage holders are falling behind.

"First, 30-day delinquencies are very closely tied to first-time claims for unemployment insurance. The number of first-time claims fell through most of 2009 but leveled off in 2010 and have started to rise again," he said in an MBA news release. See story on latest jobless claims.

"This increase in unemployment directly impacts mortgage delinquencies," he said.

"Second, some percentage of the loans modified over the last several years have become delinquent again because those borrowers, by definition, have weak credit."

It will take a strong recovery in employment for there to be a permanent improvement in delinquencies, he said.

"Only when we see a consistent increase in employment will we see an increase in sales and starts, and a sustained improvement in the delinquency numbers. Until we see the increase in the number of households that comes with an increase in the number of paychecks, all measures of the health of the housing industry will continue to be weak," Brinkmann said.

The combined percentage of loans in foreclosure or at least one payment past due was 13.97% on a non-seasonally adjusted basis in the second quarter, down from 14.01% in the first quarter, according to the MBA report. In the second quarter of 2009, the percentage was 13.16%.

“ 'Working through long-term problems is good news. That being said, the hurdle for good news is pretty low these days.' ” — Jay Brinkmann, Mortgage Bankers Association

The percentage of mortgages that entered the foreclosure process during the quarter was 1.11%, down from 1.23% in the first quarter and 1.36% a year ago.

The delinquency rate for mortgages on one-to-four-unit residential properties was a seasonally adjusted 9.85% of all loans outstanding in the second quarter, compared with 10.06% in the first quarter; the delinquency rate was 9.24% a year ago. The delinquency rate includes loans that are at least one payment past due, but not loans in foreclosure.

While the percentage of 30-day delinquencies is on the rise, the percentage of mortgages 90 days or more past due has fallen, Brinkmann said. The so-called serious delinquency rate -- or mortgages that are 90 days or more past due or in the process of foreclosure -- was 9.11% in the second quarter, down from 9.54% in the first quarter.

"Working through long-term problems is good news," he said in a phone interview. "That being said, the hurdle for good news is pretty low these days."

Only a temporary drop?

There are at least a couple of possible reasons why foreclosures fell in the second quarter. For one, a tax credit acted as an incentive for many buyers during that time -- allowing more people to buy homes from distressed homeowners who needed to sell to avoid foreclosure, Brinkmann said. He also noted the increase in short sales; in a short sale, the homeowner sells the home for less than the amount of their mortgage balance with the permission of the lender, in an attempt to avoid a foreclosure.

"When someone is seriously delinquent and they know their situation isn't recoverable, they will go and put their home up for sale," Brinkmann said. But that federal tax credit is no longer available to help distressed homeowners sell their home. The home-buyer tax credit recently expired, and its absence already severely affected July existing-home sales. See story on existing-home sales plunge in July.

The decrease in foreclosures probably is also due somewhat to mortgage modification programs such as the government's Home Affordable Modification Program and other efforts, Brinkmann said. HAMP, for example, requires homeowners complete a trial period of successful monthly payments before a modification is made permanent.

"As people demonstrate their ability to perform under the agreed upon plans, they get dropped from the delinquency records," he said. "It may be that we're finally seeing the evidence that they're pulling out of the 90-day bucket now, and I think that will continue," he said.

Also on Thursday, Freddie Mac reported that delinquencies in its single-family mortgage portfolio fell to 3.89% in July, down from 3.96% in June.

But a report from Standard & Poor's, released earlier this week, predicted that while delinquencies fell on housing finance agency mortgages earlier this year, the possibility of declining home prices and an expected continued high unemployment rate could halt improvement in mortgage delinquencies.

"Standard & Poor's expects U.S. home prices and sales to remain volatile until employment improves," the report said. S&P chief economist David Wyss projects unemployment to remain at 9.6% by the end of the year, according to the report.