It is human nature: when things are starting to look up, people tend to relax a bit causing things to slip once more. This is why a government sponsored enterprise and a large mortgage lender warn of deeper problems amidst better third quarter returns as compared to that of last year’s.

Third quarter net loss for government-owned finance company Freddie Mac has been narrowed to $2.5 billion; last year, it was at $5.4 billion. And as delinquency rates edge down, credit losses reserves decline to $3.7B versus $5B in 2nd quarter. Even with these improvements in numbers, Freddie Mac still solicited an additional $100 million from taxpayers to stay afloat.

Even large lender Ally Financial came out stronger in the third quarter but most if its profits are actually from car sales rebound benefited from its auto-lending sector. Last year, Ally Financial’s mortgage unit reported a $652 million loss but this year it came out strong with a $154 million pre-tax profit. The gain is mostly from the sale of assets (this includes European home lender) and from refinancing lower interest rates.

These better outputs have come despite the foreclosure mess faced by mortgage companies. All major lenders like Bank of America, JPMorgan Chase, and even Ally Financial have suspended foreclosures as they review their processes regarding home repossessions. This move, says Freddie Mac, adds to the backlog that now stands at 75,000 foreclosed properties.

The number of foreclosed properties has increased by 20% as compared to second quarter figures. The cost of maintaining these jumped to $377 million as of the 30^th of September.

Ally, which has joined major lenders in foreclosure delays, is now halfway through reviewing its 15,500 loan files and reports that it has found no improper foreclosure. In a different matter, Ally Financial increased its reserves to $1.1 billion. The increased reserve will cover repurchase of loans from investors who failed the underwriting guidelines.

Both Ally Financial and Freddie Mac will see continued growth when home prices remain steady. But this is far from happening.

“We have an oversupply and there is no sign of demand picking up, so I expect prices to decline,” says co-director of the Center for Economic and Policy Research Dean Banker.