News Analysis: Foreclosures Rise, and Trend May Persist.

New York -- An increasing body of data show that the foreclosure rate is rising, especially among nonconforming loan products, and at least one analysis suggests the upward momentum is far from over.

A study by First American CoreLogic predicts that 13% of adjustable-rate mortgages originated between 2004 and 2006 will end up in foreclosure as payments reset at higher interest rates.

The study analyzed 8.37 million ARMs valued at $2.2 trillion, predicting that 1.1 million of them will go into foreclosure over a six- to seven-year period. That would mean 13% of the loans, representing $326 billion of debt, would end up in foreclosure. Furthermore, the CoreLogic study predicts that owners, lenders and investors will lose approximately $112 billion after the resale of homes.

Christopher Cagan, author of the study and director of research and analytics at First American, told MSN that the numbers aren't as intimidating in the context of the broader economy as they might seem at first. In fact, he said the housing markets are basically transitioning to more normal conditions. The lenders and borrowers most at risk are the ones who bought property at the peak of the market with little equity and unusual loan terms, he said.

"This is the business cycle. This is not the end of the world," he said. "Basically, we are going back to a normal market, and in normal market conditions riskier investments are riskier than conventional investments, and we are finding that out right now. The people who did stuff at the very top and did the most adventurous or risky loans are the most exposed."

Mr. Cagan anticipates that the effect of payment resets on loans originated during the study period will play out over six to seven years because the loans don't all reset at the same time, and even after a reset occurs, financially stretched borrowers will not automatically default right away. He said that after 2008 the worst of the reset problems should begin to taper off, because lenders have already started to tighten underwriting.

But he does not believe that the anticipated rise in foreclosures will swamp the housing market, noting that annual home sales volume has exceeded six million in recent years. Nationally, a couple hundred thousand more foreclosures "doesn't take over and dominate the market," Mr. Cagan said.