Moody’s Investors Service is forecasting another 8 percent decline in home prices over the course of 2010 before a bottom in residential property values is reached,

largely because of the “underwhelming” success of the administration’s Home Affordable Modification Program (HAMP).

When all is said and done, the ratings agency predicts a peak-to-trough drop of 34 percent in national home prices. That’s actually an improvement over Moody’s estimates last month, when the agency was expecting a total peak-to-trough decline of 37 percent. However, it’s the duration of depreciation that’s the headline grabber. Previously, Moody’s analysts were predicting the price floor to be reached in the third quarter of this year. Now they say it won’t be hit until the end of the fourth quarter.

The reason for the extended freefall, Moody’s says, is the timing of foreclosure sales hitting the market. Market barometers such as the S&P/Case Shiller index and the National Association of Realtors’ existing-home median price have, in fact, shown improvements in recent months, but Moody’s says the progress is short-lived.

“We believe that the recent improvement in house prices is a temporary reprieve,” Moody’s said in its latest ResiLandscape report. “A decline in distress sales-including foreclosure, deed in lieu, and short sales-as a share of total home sales is a driving contributor to the gain in house prices.”

HAMP, as well as other servicer-initiated mortgage modification programs, have kept hundreds of thousands of distressed homes out of foreclosure and off the market – for now, the ratings agency said.

However, “Many of the loans in the [HAMP] program will fail to convert to a permanent modification and will eventually end up on the market as heavily discounted distress sales,” Moody’s wrote. “It is looking likely that foreclosures will hit the market more slowly than we had anticipated, mitigating but prolonging the price decline.”

Despite the administration’s efforts to stem the tide of foreclosures, Moody’s said in a January report that its analysis shows that only 400,000 to one million homes will be saved through HAMP. The agency’s projections fall significantly short of the federal government’s promise to keep three to four million homeowners out of foreclosure.