This apparent market failure owes in part to the widespread practice of securitizing mortgages, which typically results in their being put into the hands of third-party  5  For evidence that concentrations of foreclosures lead to lower house prices throughout the neighborhood, see, for example, William C. Apgar, Mark Duda, and Rochelle Nawrocki Gorey (2005), "The Municipal Cost of Foreclosures: A Chicago Case Study", Housing Finance Policy Research Paper 2005-1 (Minneapolis, Minn.: Homeownership Preservation Foundation, February), www.995hope.org/content/pdf/Apgar_Duda_Study_Full_Version.pdf; and John P. Harding, Eric Rosenblatt, and Yao Vincent (2008), "The Contagion Effect of Foreclosed Properties", Social Science Research Network working paper 1160354 (July).
6  To be sure, policy should not attempt to keep house prices from falling sufficiently to stabilize the demand for housing. But preventing avoidable foreclosures does not block necessary adjustments. Indeed, failing to prevent such foreclosures may heighten the risk that house prices will move lower than they would otherwise need to go.