That Sinking Feeling.

Washington -- Mark Zandi, chief economist at Moody's Economy.com, estimates that nine million U.S. homeowners currently owe more mortgage debt than their home is currently worth, and he thinks a lot of them will sink into default on their loans.

For that reason, Mr. Zandi recently told reporters that the number of foreclosures will likely continue to rise in the near term. Speaking at a news conference hosted by Demos, a liberal leaning research organization based in New York, Mr. Zandi said that in May some 2.75 million home loans were in default. That was three times higher than in 2005, the recent low point for defaults, and nearly double the level of loans in default during 2007.

Demos estimates that upwards of two million homes could be lost to foreclosure in 2008 and 2009. Already, Demos says that nearly 2.3 million homes, or 3% of the nation's housing stock, are vacant and on the market.

"The problem is not going away. It is likely to intensify for the remainder of this year and into next," Mr. Zandi said.

He said North Dakota is the only state that has not seen a significant increase in foreclosures.

The primary reason for rising foreclosures has evolved, Mr. Zandi said. In 2006, early payment defaults were the story. In 2007, rate resets on adjustable-rate mortgages drove up defaults. Now, negative equity is driving up defaults as consumers feel the effect of falling home values.

Adding to the pressure on loan performance today is rising unemployment, Mr. Zandi ...