The industry can expect to see either housing stabilization or "a renewed leg down" in the second half of 2010, depending on the success rate of foreclosure prevention efforts, global financial services firm Credit Suisse said in a research note this week (available to download here). "We estimate that roughly 3.2m foreclosures must be prevented in 2010 for home prices to stabilize or potentially tick up," researchers said. "This is an uphill challenge, but a combination of current government programs and their future iterations offer a narrow path for success." This projection comes as Deutsche Bank researchers say these predictions will likely become a reality, with the total peak-to-trough decline of US home prices hitting nearly 40%. In the current outlook, they say home prices will drop a further 10 to 12% from current levels. Credit Suisse researchers add the mortgage market in 2010 looks likely to absorb the effects of the Federal Reserve's exit from its $1.25trn mortgage-backed securities (MBS) purchase program. But despite the Fed's planned Q110 stop for purchases, the Fed will not entirely leave the MBS market to its own devices. Credit Suisse sees a likely backstop role for the Fed -- possibly through liquidity efforts like outright and dollar roll sales -- to diffuse the risks of a double dip in housing. But with the Fed exiting its purchase program, the MBS market will be without a clear backstop for the first time since the mid-1990s, Credit Suisse noted. Reform of the government-sponsored enterprises (GSEs) is necessary to allow the GSEs to return to active roles of investors/backstops. Reform could also re-engage foreign investors, Credit Suisse said. "The government (Fed/Treasury/GSEs) will likely be the largest owner of Agency MBS for the foreseeable future," researchers said. "We think attracting increased purchases by traditional investors such as money managers, banks, and foreign investors is key to long-term stability of the MBS market." Write to Diana Golobay.