Unfortunately, the problem of foreclosures is actually quite a bit more serious than even the media is making it out to be. They are just focusing on the foreclosure crisis and how homeowners and lenders are being affected during the credit crunch, while ignoring many other, related problems.
The housing market was pumped full of inflated money and easy credit for at least the decade from 1997 until 2007, and it started accelerating after the 2001-2002 "mini-recession." A bubble was inflated in residential real estate to keep the party going after the tech stock collapse, and now there are no markets left to inflate.
The Federal Reserve has been lowering interest rates over the past six months, but this has not helped homeowners save money on their resetting Adjustable Rate Mortgages. Any money they "save" by having lower-than expected mortgage payments, but higher than they originally paid with the teaser rate, is not reflecting actual savings of money, but simply an opportunity cost. If rates had been kept higher, they would have to pay more, but the expiration of the teaser rate is causing them to pay more anyway, just "less more."
Furthermore, lower interest rates mean that the dollar is being devalued, and costs of imported goods (and anything made with imported goods as an input) will increase. Anything made with oil has been going up, such as plastic goods and items that need to be transported around the world and throughout the country. Trucking companies are feeling this pain especially acutely, as the price of diesel has been over $4.00 a gallon for a while now, with gasoline following closely.
Homeowners are also seeing food prices increasing in America and worldwide, with riots and general shortages in some Third World countries already happening, and rice shortages being reported in the US. The dollar is becoming worth less, so producers of real goods like food increase their prices or produce crops that are worth more as ethanol to feed SUVs than as food to feed families.
In this inflationary economic environment, homeowners with a mortgage payment that has increased by 50%, with the cost to feel their car up 30% in a year, and the cost to feed their family increasing at 20% in a year, may be running into some real problems. A total personal financial collapse is probably one job loss or medical emergency away for families already living on the edge.
But even if homeowners fall behind on all of their bills in large numbers, the banks and the government will not do anything to help the people -- in fact, quite the opposite has been happening. The Fed is bailing out banks with billions of newly printed dollars every week now, and this inflates the money even more, driving up costs even higher, pushing more homeowners into foreclosure as they struggle with rising food, energy, and healthcare costs.
But with the free money the banks are receiving, they have no incentive to work with homeowners to put together repayment plans, mortgage modifications, or other programs that will stop foreclosure on houses. The largest banks know they can sit back, do nothing, let the foreclosure process take over, and make up their loss with help from the Federal Reserve, paid for courtesy of the people they have stolen a house from.
It is bad out there in the housing market, and will continue to be bad at least through the summer of 2009, if not far longer, when the resetting mortgages will mostly have adjusted by then. But by that time, how much will gas cost? Seven dollars a gallon? How much will food cost? Will there be enough of it to feed everyone? And how will people be able to afford either transportation or food, when their mortgage payment has nearly doubled?