What Causes Home Foreclosures?

What causes home foreclosures? You don't get the answer from current mainstream journalism headlines, which are fixated on adjustable rate resets. The Peridot Capitalist posted a chart from a Countrywide investor presentation reporting more than 80% of foreclosures are attributable to loss of income, illness, and divorce (payment adjustment ranked 7th at 1.4%). A post on Naked Capitalism has some good commentary on what this means for the mortgage modification plan.

I have a couple of additional observations:

1) These are the causes of foreclosure for all borrowers. They are not unique to subprime borrowers.
2) Given current economic conditions, why are foreclosures increasing now? Loss of income generally means loss of employment, but unemployment is not going up, and illness and divorce are both steady state conditions that don't fluctuate much. The answer is an underlying unstated condition to all these reasons: the borrower couldn't sell the house for more than the mortgage amount. A foreclosure requires both inability to pay the current debt and the inability to liquidate the asset for more than the amount of the debt. The bigger question is, why did houses stop appreciating? That's a topic for a separate post, but in a nutshell I believe the huge escalation in house values between 2003 and 2005 was driven largely by a demand spike created by easy financing, and when the pool of borrowers taking advantage of this financing was saturated there was nothing left to drive prices higher.
3) Loss of income and divorce both spike during recessions. If we slip into a recession, the foreclosure situation will get much, much worse.