I have found this article today at another blog: Why mortgages have eaten Americans out of house and home | Wise Bread and thought it would be useful in the discussion on foreclosure.
At some point, people stopped calculating what they could afford long-term and started chasing what was just (or substantially) beyond reach, made possible by slim downpayments and variable-rate mortgages. On September 2, 2007, the New York Times quoted President Bush’s diagnosis, which was similar; he mentioned “both ‘excesses in the lending industry’ and unduly optimistic homeowners who took out ‘loans larger than they could afford,’ as reasons for the mortgage woes.”
The mistakes indeed do go both ways, with irresponsible lenders and uninformed buyers engaging in the dance of debt. The terrible irony is that now, even people who responsibly make their mortgage payments on time are confronted with declining equity; their neighbors are foreclosing, so their own house value is plummeting so quickly that they can’t resell.
The current foreclosure market, simplified, has two causes: people getting more they can afford, and lenders too willing to lend.
The result is a decline in home prices. . . . . . .