Home builders should expectanother year of financial and market fallout from continued foreclosure troubles, with home prices falling as a result, industry experts say.

With another large wave of ARMs ready to reset this May and June, the worst of 2007’s foreclosure problems will be the norm in 2008, says Rick Sharga, vice president of marketing for Realty-Trac, an Irvine, Calif.–based online marketplace for foreclosure properties.

“We’re probably going to see the peak of the foreclosure problem in 2008,” Sharga says. “We’ll maintain the high levels we saw toward the end of 2007 through most of 2008.”

While noting that the bulk of bad ARM loans will work their way through the system by the end of 2008, Sharga says foreclosure problems won’t dissipate when the clock strikes twelve at New Year’s 2009.

“It will certainly last into 2009, and some people are suggesting it could even go a little longer than that,” he says.

Still, Sharga lauds builders for cutting back on home production, a move that should lessen the impact of additional supply from foreclosures.

With low interest rates and reports of increasing levels of refinancing activity recently, there is some talk that refinancing could save a lot of homes from foreclosure, says Thomas Goldstein, former chairman, CEO, and president of ABN AMRO Mortgage Group and now managing director and CFO of Madison Dearborn Partners, a private equity investment firm. The Mortgage Bankers Association’s Refinance Index increased the week of Jan. 23, following the Federal Open Market Committee’s decision to cut the Fed Funds rate by 75 basis points, but has since been unstable, dipping down and then trending back up.

While Goldstein won’t project that refinancing will keep foreclosure problems at bay, or stop a recession, he suggests it offers the only glimmer of hope.

“There’s a way to ride the mule out of the ditch that wasn’t there last week.”

Whether enough people can take advantage of refinancing opportunities is the big question, Goldstein says.

“Can some significant number of them now refinance into better mortgages? Or are they so upside down on these things that they’re stuck?” he asks.

Sharga feels that so many of the loans that should be refinanced are held by people who are already in default, have no equity, or have negative equity that refinancing will not play a large role in 2008’s foreclosure mess. The people who could benefit from refinancing are those in no risk of default or foreclosure, Sharga says.

The worst markets for foreclosures in 2008 are likely to be the same ones hit in 2007, he says.

Noting that the high-end home market is still holding up, Sharga suggests those building for wealthy buyers will have a better 2008 than home builders selling to everyone else.

“For those that focus on middle America residential properties, 2008 is going to be a very, very tough year,” Sharga concludes.