We need to strengthen and augment our efforts to reduce preventable foreclosures. In addition, we need to turn far greater attention to limiting the costs of foreclosures that do occur. Such efforts are not only in the interest of the affected families and their communities but also in the interest of the financial institutions involved and the broader economy.
When the cycle is moving upward under benign economic and financial conditions, the amplification process between maturity mismatches and asset prices takes place very gradually but steadily, and, in any case, the risks in the financial system are unlikely to manifest themselves. Once the cycle is reversed, however, the situation deteriorates suddenly. Maturity mismatches exaggerate the shortage in funding liquidity.