The investment bank Credit Suisse is now predicting that 6.5 million American homeowners — that’s one out of every eight that has a mortgage — will end up in foreclosure over the next five years.

In a report this week titled “Foreclosure Trends: A sobering reality,” Credit Suisse predicts home prices will continue to fall throughout 2008 and 2009, causing a huge wave of foreclosures.

“… We estimate a total of 6.5 million loans will fall into foreclosure over the next five years, with the peak in 2008,” the report says. “That estimate includes about 1.2 million loans currently already in foreclosure … The coming flood of new foreclosures could put 8.4% of total homeowners, or 12.7% of homeowners with mortgages, out of their homes.”

Other key points in the report:
— The report predicts housing prices will fall by 10% in 2008 and 5% in 2009, and then grow by 3% in future years.
— The report concludes falling prices — and resulting negative home equity — is “a primary driver of default and that the walkaway effect is alive and well.” In other words, some people who have been paying their mortgages on time, and are capable of continuing to pay, will instead stop paying and walk away once they realize their home is no longer worth what they owe on it.
— Likening the foreclosure crisis to a baseball game, the report says, “We are at best in the third inning … global real estate investors are in the early stages of meltdown.”
— By 2009, the report predicts, 63% of sub-prime borrowers will be “underwater” on their mortgages — owing more than their homes are worth.