While the high delinquency levels and subsequent pullback of credit for subprime loans was certainly foreseeable, what was less obvious was the degree to which problems in the subprime market would spread to the market for prime loans.
Loans in the prime loan market are going delinquent for all the traditional reasons: economic conditions and life events, such as job loss, medical problems, and divorce. In a rising or even stable price environment, these delinquencies would often be cured through refinance or sale of the property, which would result in low levels of actual foreclosure.