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What’s Behind Foreclosures?

Writing in today's Wall Street Journal, economist Stan Liebowitz reports the results of his careful study of the data on mortgage foreclosures.  Liebowitz finds that the chief reason homeowners default is negative equity in their homes (and, hence, not upward adjustments in the interest rates owed on ARM mortgage loans, or any other of the alleged culprits).  Here are some key paragraphs:

Many policy makers and ordinary people blame the rise of
foreclosures squarely on subprime mortgage lenders who presumably
misled borrowers into taking out complex loans at low initial interest
rates. Those hapless individuals were then supposedly unable to make
the higher monthly payments when their mortgage rates reset upwards.

But the focus on subprimes ignores the widely available industry
facts (reported by the Mortgage Bankers Association) that 51% of all
foreclosed homes had prime loans, not subprime, and that the
foreclosure rate for prime loans grew by 488% compared to a growth rate
of 200% for subprime foreclosures. (These percentages are based on the
period since the steep ascent in foreclosures began — the third
quarter of 2006 — during which more than 4.3 million homes went into