How is this foreclosure crisis different from a more general downturn in the housing market?
This crisis will have more serious ripple effects than you’d see in a generalized slowdown or downturn. These high-priced, unaffordable loans are geographically clustered. That means foreclosures will be concentrated in vulnerable neighborhoods, not evenly scattered across the landscape. Also, in a general downturn, homeowners may lose some wealth and they may have to delay selling their home, but most aren’t saddled with loans they can’t afford. Unless job losses are heavy in a downturn, most homeowners can still afford their mortgages even if their home’s value has gone down. With subprime mortgages, too many homebuyers ended up with loan terms that they couldn’t afford. Some homebuyers didn’t understand the complicated loan product they were sold. Some were deceived by mortgage lenders. And some just figured that house prices would keep rising so they’d be able to sell or refinance before their interest rates jumped. But when a downturn in the market and an epidemic of unaffordable
