Final answer:
Foreclosures typically occur due to nonpayment of principal and interest on mortgages. The crisis was evident with the housing bubble burst of 2008 after falling home values and increasing delinquency rates. The government responded with measures like the American Restoration and Recovery Act to provide relief to affected homeowners.
Step-by-step explanation:
Most foreclosures occur as a result of nonpayment of principal and interest on a mortgage. During the mortgage crisis that began in 2007, property values plummeted, leading homeowners to default on their mortgages, as the homes were worth less than the borrowed amount for purchase.
This issue was exacerbated by a decrease in tax revenue for local governments and states cutting back on aid. Notably, Detroit filed for bankruptcy in 2013 during this economic recession. The housing bubble burst in 2008 after years of late payments and delinquencies began increasing in 2005, leading to a financial crisis where credit became scarce.
Moreover, the federal government had to step in when many smaller banks closed due to farmers being unable to make mortgage payments, leading to foreclosures. This economic turmoil necessitated actions such as the American Restoration and Recovery Act, which aimed to mitigate the effects of large numbers of home foreclosures by providing tax credits for homebuyers.