And the banks aren’t even foreclosing on all the houses they should because as long as they don’t they can keep on pretending a house with a $500,000 mortgage is worth that much. Foreclosing and selling it will force them to write it down to its real value.
Meanwhile, those $500,000 homes are sitting vacant and a vacant house quickly becomes prey to vandalism, rodent and insect infestation, mold/mildew and just basic deterioration. This makes it worth even less than it would have been worth if the bank just marked the costs down and unloaded them when they were in marketable condition.