10 to 12 million U.S. Homes Could Ultimately Go Into Foreclosure

There's been a lot of talk lately about a recovery in the housing market – even reports of bubbles re-inflating in certain markets.

Elizabeth Warren, chair of the Congressional Oversight Panel, isn't buying it.

"We see things getting worse in the housing market," Warren says, citing the pernicious effects of foreclosures, which rose 5% in the third quarter to a total of 937,840, according to RealtyTrac.

"The long-term impact of high foreclosure rates on our housing market and overall economy would be disastrous," Warren warns, citing estimates that 10 to 12 million U.S. homes could ultimately go into foreclosure. "We have to get foreclosures under control."

Why the sense of urgency? A single foreclosure property brings prices down an average of $5000 for every house in a two-block radius and costs investors an average of $120,000, she says.

In its most recent report, Warren's panel criticized the Treasury's foreclosure modification efforts as "inadequate" and "targeted at the housing crisis as it existed six months ago, rather than as it exits right now."

Specifically, the Treasury program is targeted at subprime borrowers hit with ballooning mortgage payments vs. prime borrowers hit by job losses. As for the "morality question" of whether the government should be bailing out homeowners, Warren says "I'm passed that," noting "there's plenty of unfairness to go around."

More importantly, "ultimately the American taxpayer -- thanks to Fannie, Freddie and FHA -- is going to stand behind many of these mortgage," she says. "We need to be thinking more globally what is cheapest possible way to bring this crisis to an end."

One solution: Force investors holders these mortgages who may be betting on a government bailout to take a haircut, as occurred with GM and Chrysler creditors.

"That's why they call it investing," Warren says. "You make profits in good times, take losses in bad times. That's the fundamental part of this [modification effort]