More borrowers now challenge foreclosures, adding to the caseload. Mediation agreements further prolong the process. The average number of days a mortgage is in foreclosure from the notice of default to completion stood at 1072 days in New York and more than 900 days in Jersey in the third quarter, according to RealtyTrac. While the record timelines give borrowers more options in seeking out an alternative to foreclosure, the strong borrower protection laws have become somewhat of a double-edged sword for home buyers in these states. The longer a home stays in the foreclosure process, the greater the chances of the property deteriorating as the homeowners lose the incentive to maintain it. So not only does a foreclosed home sell at distressed prices, it drags down neighborhood prices as well. The inventory of homes yet to hit the market also casts a shadow on the housing outlook in the region. Recent data already points to big differences in the performance of markets where foreclosures are processed quickly and those that are processed through courts. In Arizona for instance, home prices are up 20% year over year, according to the FHFA Home Price Index. While overall foreclosure levels in Arizona are still high, foreclosure activity is on the decline. In contrast, in New York and New Jersey, prices are down 0.4% and 1.7% respectively over the same period. There are also concerns that foreclosure delays may raise the cost of mortgage credit in the region. One impact of the foreclosure delays that is yet to be studied is whether it causes underwater borrowers to default. "Delays can influence how long someone chooses to stay in their home," according to Joseph Tracy, senior adviser to NY Fed President William Dudley. "You could see an increase in delinquencies. It is a real risk. But it the excessive foreclosure delays is such a novel experience that we don't have data to quantify that risk." That perceived risk could be why housing giants Fannie Mae ( FNMA) and Freddie Mac ( FMCC) are proposing to raise guarantee fees in five states which the agencies believe have higher foreclosure costs due to their legal process, including New York and New Jersey. The proposal, if implemented, could lead to a rise in mortgage rates.