I was quoted today in a CNN Money article, Foreclosure crisis: The $4 billion fix. Specifically the article was talking about the portion of the recently passed Housing and Economic Recovery Act of 2008 that gives local governments a total of $4 Billion to purchase and rehabilitate or redevelop foreclosed properties.

My quote: "$4 billion is kind of a meaningless sum," O'Toole said. "It can't possibly make a difference. You've brought a pistol to a nuclear war."

Let me explain...

While defaults have begun to level off, at least temporarily, foreclosures remain a significant force in most California real estate markets.This is bad for homeowners, the economy, and our financial institutions.

But it is important to remember that it is fantastic for buyers.

Back in 1969 just a couple of years after I was born, a woman named Elisabeth Kübler-Ross wrote a book called On Death and Dying in which she described five stages of grief after studying the terminally ill. These stages of grief have been found to apply to other situations, and I personally have found them to serve me quite well when talking to homeowners, Realtors, and others about foreclosure.

The stages are:

1. Denial
2. Anger
3. Bargaining
4. Depression
5. Acceptance

It is easy to understand how each of these can apply to the current real estate market and foreclosure situation. This is true both for homeowners as well as for anyone who depends on the real estate market to make a living.

Back in mid-2006, nearly a year before I launched ForeclosureRadar.com, I wrote an article for iTulip.com to help Eric's readers better understand current foreclosure statistics. In it, I introduced the fact that there is a base rate of foreclosure that happens regardless of the housing market. This base rate of foreclosure being due to the Five D's: Death, Disease, Drugs, Divorce, Denial.

From the time I started buying foreclosures, through writing that article in mid-2006, the housing market was booming. Selling most homes was easy, and anyone with a pulse could get a loan (one lender actually went as far as to advertise a "pulse loan"). In this environment, many found it hard to believe that foreclosures even occurred. I initially struggled to make sense of it myself. Why would there ever be homes with tens or even hundreds of thousands in equity being sold at the foreclosure steps? Building this list bridged that gap for me. While the Five D's now represent a small percentage of the foreclosures that we see, I still feel it is an important part of the larger story.

I've wrestled a bit with whether this list is right or not over the years. Some have argued that drug use is a disease, or that denial is a cop-out/catch-all. I had even added a 6th at one point, Duty, as our service members began losing their homes while serving in Iraq. I've since dropped Duty as part of the base rate, as I sincerely hope that it is a temporary problem that will not continue. After all the arguments, this is the list that continues to stick. Let's take a quick look at each:

There's an awful lot of debate about who is to blame for the current foreclosure crisis and who should, or should not, be bailed out. Some folks are down right angry.

My father was a logic and philosophy professor. As a kid growing up I was allowed to do almost anything I wanted so long as I could make a valid argument for doing it. This was much harder than you might expect thanks to the many fallacies that rendered my arguments invalid in my father's eyes. That my teacher said it was true didn't make it so (the appeal to authority fallacy). But of all the fallacies that my father used to thwart my plans, the one I remember best is the post hoc ergo propter hoc fallacy - which says that just because something happened first doesn't mean it CAUSED what happened next.

Subprime loans were the first to foreclose, but that isn't enough to prove subprime lending caused this crisis. Speculation is correlated with foreclosures, but is it really the cause?