2.2 Million Homes

There were 2.2 million properties in foreclosure in May, according to Lender Processing, a Jacksonville, Florida-based company that provides loan-servicing software. Another 1.9 million mortgages were delinquent more than 90 days, the point at which foreclosure proceedings typically start.

Lenders are delaying home seizures as all 50 state attorneys general investigate the industry's foreclosure practices. The probe, begun late last year, follows allegations of shoddy practices such as robo-signing, or using workers with little or no training to sign thousands of documents filed in support of foreclosures without reading them.

Horne declined to comment on the investigation. Iowa Attorney General Tom Miller, the Democrat leading negotiations for the states, said last month that officials are making progress in the talks. He didn't return phone calls seeking comment.

Falling Foreclosures

Bank seizures and notices of default or auction dropped in May to the lowest level in almost four years, according to RealtyTrac Inc., a real estate data company in Irvine, California. Delays in working through the inventory may postpone a recovery by preventing home prices from reaching a bottom.

"The only way out is to let the market take the hit and then move on," said Cato's Bandow.

For prospective buyers, Fannie Mae and Freddie Mac mortgage-qualification rules have been changed to include lower debt limits, bigger down payments and restrictions on the financing of condominiums, along with the higher credit scores.

"We don't believe the pendulum has swung too far given the changed landscape of mortgage risk," said Doug Duvall, a spokesman for Freddie Mac in McLean, Virginia.

Fannie Mae has implemented "the right standards to help stabilize the housing market," said Amy Bonitatibus, a spokeswoman for the Washington-based company.