We've devoted a fair portion of our reporting over the past year to home ownership and foreclosure. Some of those stories ran again, with updates, during the last week of the year. Today comes the official tally for 2010: more than one million homes foreclosed on, with another FIVE million homeowners at least two months behind on their payments, according to foreclosure tracker RealtyTrac.

Rick Sharga, a vice president at the firm, says this year isn't looking any better. "We could easily see a 20 percent increase in both total foreclosure activity and bank repossessions in 2011," he told us, adding that he expects it to be "the peak year for foreclosure activity."

Why? Higher interest rates, a predicted continuation of the drop in real estate prices, persistent unemployment. Foreclosures slowed at the end of the year, due to the robo-signing controversy. But banks are reportedly gearing back up to repossess properties after fixing the paperwork.

As usual, the future is inscrutably murky. A recent Massachusetts court decision again called bank paperwork into question. That could slow foreclosures yet again. But regardless, the high anxiety of underwater homeowners is unlikely to be allayed - short of medical intervention - anytime soon.

At last weekend's annual economics convention, we spoke with half of the famous Case-Shiller real estate index, Karl "Chip" Case. He was worried about the larger implications of moribund market.

"We haven't figured out what's going to happen to the housing market yet," he began. "I would have thought two years ago, three years ago, that by now we would have that sorted out. But we haven't."

Case was surprised by an apparent economic recovery without a recovery in housing and all the bad debt held against real estate that's worth less and less.

"The housing market's still about 8 million in properties under water, and that's a conservative guess. It's Fannie [Mae] and Freddie [Mac]. It's the banks. There's a lot of paper out there. $10 trillion dollars of paper, and a lot of it is not on the books at its true value. The big portfolio holders -- Fannie, Freddie, FHA [Federal Housing Authority] -- have no idea, to be frank with you, no idea what the paper they're holding is worth and I think it's a potential time bomb. If housing prices were to go down 15% from here, it's just untold additional losses."

And a grim tidings for the financial system - and the economy as a whole.

By: Paul Solman