The outlook for house prices is getting even gloomier as traders on the Chicago Mercantile Exchange bet on steep price declines and the number of homes for sale grows.

Traders on the CME expect home prices in 10 major cities to drop an average of about 10% from mid-2007 to November 2011, according to an analysis by Tradition Financial Services Inc., New York, of prices for housing futures traded on the exchange.

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In your opinion, what will this relapse do to mortgage markets?

It’s likely to get bloodier this year and into the next — many more lenders will go out of business. I’d expect to see wholesale and correspondent lending practically disappear, especially in non-conforming marketplace. Retail origination will take center stage as lenders retreat to a channel they feel they can better control. And that will accelerate job losses in the mortgage sector.

Many companies that survived this first wave will catch their breath just in time to be hit again — and many won’t be ready for it. Others, like Countrywide, know what’s coming — the question is whether they’ve done enough to be able to ride it out.

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“Lehman Brothers announced today that market conditions have necessitated a substantial reduction in its resources and capacity in the subprime space,” the firm said in a news release.

Lehman’s decision to shutter the lending unit, BNC Mortgage, makes it the latest casualty in the subprime mortgage meltdown that started earlier this year and rippled into the broader credit markets starting in late July.

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First National Bank of Arizona has become the latest casualty in the mortgage collapse that is gripping U.S. lenders. The privately held bank has shuttered its wholesale mortgage lending division, according to mortgage brokers who have spoken with the lender.

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