MBA Forecasts 1.8M Foreclosures in 2008.

New Orleans -- The mortgage industry is facing the prospect of 1.8 million foreclosures this year, up from 1.5 million in 2007, according to a prediction by the Mortgage Bankers Association's chief economist. That means a higher transition rate into REO.

Doug Duncan, who will soon join Fannie Mae as its chief economist, made the prediction during a panel discussion at the MBA National Mortgage Servicing Conference in New Orleans. The panel agreed that foreclosures are not just a subprime problem, but a broader economic problem affecting different regions, especially the Midwest and previously overheated markets.

Amy Crews Cutts, deputy chief economist at Freddie Mac, said delinquencies and foreclosures are also rising in prime loans. Ms. Cutts said it will take time, perhaps until the third quarter, before home prices stop falling. "The recession risk is higher," she said. "And unemployment is creeping up on us."

Alternative-A and negative-amortization loans were also cited as possible causes for concern when they reset in 2010.

Panelists compared today's market troubles to that of the Great Depression. A large majority of borrowers owe more than their home is worth, said David J. Kogut, director of mortgage market analysis at Fannie Mae. He said there is a huge supply problem in Arizona, Nevada, California and Florida, as well as in Ohio, Michigan and Indiana, where these markets have seen significant job loss.

Success is being moderated by the amount of loss mitigation that is being conducted, the panelists said. There is still a lot to be done, and the added costs in servicing shops are being felt by all aspects of the company.

The overall market could see a U-shaped fix, said Ms. Cutts, who added everyone is hoping for stability. Some regions are seeing a modest supply and construction pick up. But most likely, it will take a long slow, lumbering recovery.