Mortgage banks are expected to foreclose on 1.8 million American home loans this year as already-stretched “sub-prime” borrowers contend with rising interest rates, according to new research.

The predicted foreclosures represent a 44 per cent jump on last year and are expected to leave about 720,000 mortgage holders without a house, with potentially far-reaching consequences for the global economy.

A foreclosure is a legal process typically set in motion when a borrower falls 90 days behind on mortgage repayments. About 40 per cent end in a forced sale or repossession of the house, while the bank and borrower reach an alternative repayment schedule in the remaining cases.

The number of foreclosures jumped by 87 per cent to 164,644 in June, compared with the year-earlier period, according to new figures released by RealtyTrac, the American mortgage research firm.

This brings the total number of foreclosures to 925,987 for the first half of the year. It compares with 1.25 million for the whole of 2006 and is more than the 847,000 recorded in 2005, according to RealtyTrac.

A significant jump in the number of foreclosures is bad for the housing market because it leads to fire-sales and damages confidence, which then reduces prices. Declining house prices discourage consumer spending and make lenders generally nervous about approving loans, which is bad for the economy as a whole. As the world’s economy becomes increasingly integrated, an increase in the cost of borrowing and a decline in company profits are more likely to cross the Atlantic and have an impact around the globe.

RealtyTrac estimates that 58 per cent of the foreclosures so far this year relate to so-called sub-prime mortgages – home loans made to borrowers with poor credit ratings that carry a higher interest rate.

The value of sub-prime mortgages soared in recent years as the seemingly endless surge in house prices encouraged brokers to arrange home loans for increasingly unsuitable borrowers, often with no proof of income.

Sub-prime borrowers will be among the hardest hit when as much as $1 billion (£492 million) worth of adjustable-rate mortgages are reset to a higher interest rate between now and the end of the year, RealtyTrac said.

In a measure of just how dangerous the market perceives sub-prime mortgages to be, Canada Imperial Bank of Commerce (CIBC) was forced to strenuously deny press reports yesterday that it had $2.6 billion of exposure to such high-risk loans. The bank refused to disclose its exposure, which a spokesman described as “well below” the $2.6 billion estimate.

Meanwhile, Randall Kroszner, Governor of the Federal Reserve, said America’s central bank was looking at ways to help homebuyers with poor credit ratings as lenders become increasingly wary of making sub-prime loans.

Mr Kroszner said: “We are looking very seriously at whether we can write rules that will be helpful to protect consumers in this [sub-prime mortgage] market while maintaining responsible credit from responsible lenders that can be handled responsibly by people in this market.”