This has to start getting better.  Otherwise, the downward spiral of the markets will continue.

The mortgage problems behind the havoc in financial markets climbed back last month, as delinquencies jumped at the fastest pace since last year for many loan categories.

Overall, 6.6% of mortgages were at least 30 days past due at the end of August, up from 5.8% at the end of June and 4.51% a year earlier, according to an analysis prepared for The Wall Street Journal by Applied Analytics, a unit of Lender Processing Services Inc.

"The disturbing thing is that mortgage quality is bad and getting worse," said Mark Zandi, chief economist of Moody's Economy.com, which has data showing a similar trend. Mr. Zandi said the latest data "argues that foreclosures will remain very, very high well into 2009 and 2010." ...

All loan categories were affected in the latest data, though the largest percentage-point increase came on subprime loans, where the delinquency rate jumped more than 2.2 percentage points from June and July levels to 24.48% in August.

But other types of loans deteriorated rapidly, too. Delinquencies on option adjustable-rate mortgages, which let borrowers make minimum payments that may not even cover the interest due, jumped 1.17 percentage points, to 14.38% in August. Delinquencies on Alt-A mortgages, a category between prime and subprime, also rose 1.17 percentage points, to 10.73%. In previous months, increases were smaller. ...

Job losses also are taking a toll on borrowers, said Thomas Lawler, an independent housing economist. Until recently, "so much of the horrendous credit performance has had nothing to do with the economy," Mr. Lawler said. "Now, we clearly see the employment picture deteriorating." Efforts to modify loans may have temporarily obscured the weakness in loan performance by reducing the number of loans reported as delinquent, he said. ...

A separate analysis by UBS AG that looked at loans packaged into securities concluded that delinquencies are accelerating at a "disturbing" pace for jumbo mortgages issued in 2006 and 2007 to borrowers with good credit, though they remain at relatively low levels. On Thursday, Moody's Investors Service boosted its estimates for losses for securities backed by jumbo mortgages issued in 2006 and 2007. Jumbo mortgages are those too large to be eligible for purchase by government-sponsored mortgage companies Fannie Mae and Freddie Mac.

Both delinquencies and foreclosures continued to climb for option ARMs. The share of option ARMs in foreclosure jumped to 7.8% from 7.3% over the two-month period. Nearly 30% of option ARMs originated in 2006 were at least 30 days past due or in foreclosure 2½ years after origination.