Sunny Day

The house problem isn't just sub-prime mortgages causing the fault. Although making $125,000 mortgages to Walmart clerks making $8.00 per hour, but that is a good portion of the problem.
House prices were too heated. As with anything that demand overheats, the bubble bursts, many times for no apparent reason. It's been happening for at least 400 years when tulip bulbs were the rage. With anybody being able to get a mortgage, demand (prices) went through the roof.
But mortgages were also being written to people who were bordering on being able to afford their mortgage or people with no problem paying the mortgage. Many people who were 2nd or 3rd time buyers traded up to a bigger house, figuring that they would continue to get pay raises and bigger bonuses. They also were believed that prices would continue to rise.
Mortgage rates were under 5% as was the unemployment rate. But as unemployment started to rise to 9% (17% counting people whose unemployment ran out), both people who should have never had a house & people who afford their houses fell into foreclosure.
The last reason is it's been government policy for over 60 years to encourage home ownership, especially with special programs for people to become 1st time buyers. Add in the mortgage deduction for home interest payments, everybody wanted a house.
At 1st the banks were quick to foreclose, then they got caught with improper mortgage papers, so houses that might have been foreclosed on, now sit empty in limbo, awaiting court decisions that make take years in the courts.
In a regular market, you lost your job, but your wife still has hers, you could sell your house and buy a smaller, less expensive house. But in this market, your $80,000 house with can be be worth as little as $20,000. Have a $60,000 mortgage on the house and there's nothing you can do but go into foreclosure or a short sale, move to a dirt cheap apartment or family.
With millions of jobs & total industries moving out of the U.S., unemployment is going to stay high for years, or possibly for ever. Also the Internet has wholesale destroyed industries. How many people did the newspaper industry employ? The movies aren't on the ropes yet, but hurting. Without jobs, people can't buy houses.
Oddly, a lot of foreclosures are selling. But they sell to guys looking for trashed houses, they can fix & flip or rent. I'm working with 2 groups doing this and competition for cheap, fixer uppers is rough. But it's damn easy to lose on a house, as there's so many empty houses, it's hard to get a good profit margin.