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If foreclosures are the earthquake, watch out for the credit crunch tsunami

Part 4: Subprime tsunami

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Editors note: Part four of a four-part series on the crisis in subprime mortgage lending looks at why lenders underestimate the cost of making risky loans during housing booms, and how the credit crunch may play out in the marketplace. Read Part 1, Part 2 and Part 3.) The impacts of the current rise in mortgage delinquencies and foreclosures will be plain to see. Hundreds of thousands of families -- even millions -- are expected to lose their homes as they are unable to make payments on loans that, in many cases, will exceed the value of the homes that secure them. The rise in foreclosures could depress housing prices in some regions by flooding the market with inventory. While those foreclosures will be painful for many, it's possible that the greatest impact on the housing market will come from more complex repercussions already underway. As the percentage of bad loans increases and home prices stagnate or decline, investors who have poured trillions into the U.S. housin...