The Foreclosure-Unemployment Feedback Loop

The foreclosure crisis started with loans to people who didn’t make enough money to pay them back; loans that were issued on the premise that if the owner ever got into trouble he could always sell the house. That started unraveling when the housing bubble started unraveling. But now that unemployment is rising more and more “prime” loans are going bust:


The issue here is that even the best credit rating in the world is little protection against the fact that if you’re laid off during a recession your income may drop a huge amount. Foreclosures, in turn, help make the economic situation worse and drive up the unemployment rate.