Let’s imagine a nice little community of 400 homes. It’s a perfectly average American community, and it could be anywhere: in town, in the ‘burbs, in the countryside.

Thanks to the often-cited statistic that 68% of Americans own their homes, we can deduce that perhaps as many as 32% are rental homes, or 128. However, we are going to assume there is an apartment complex down the road, and that only a third of that number are in fact rental homes. We’ll round down to 42.

Because it is a perfectly average community, roughly 5% are currently available. Most of them are for sale or lease. A few have sales/leases pending — the sign is still up, but only because the deal hasn’t actually closed yet. Another few are being prepped for sale/lease, but frankly if you made the owner an offer out of the blue he or she would likely take it.. That’s 20 homes. A lot of these homes are currently not occupied.

Right now, 2 of them are in foreclosure, like one out of every 194 homes nationwide — more than double last year’s figure. Once the bank takes them back, they will be added to the list of homes currently available.

In addition, since 6.8% of American homes are currently financed at least in part with a ARM sub-prime mortgage, there’s 27 homeowners that don’t know what their payment will be next year. Since there are 75.1 million home owning Americans and “over 7.5 million first-lien subprime mortgages outstanding”, you can see that one out of every 10 homes in this average community are involved in the subprime mess in one way or another. That’s 40 homes. There is reason to suspect that a disproportionate number of these homes are currently rented, because a lot of investors had to resort to subprime lending. Suddenly, Hope Now’s efforts seem quixotic.

So let’s take a look at how this could play out in the next few months. Those two foreclosures alone will drive our available homes figure to 22, an increase of 10%. This doesn’t seem like a big deal in one community of 400 homes, but multiplied out across a metropolitan area, it can be huge. The bank does not particularly want to own this property, and in many cases is willing to sell at a loss. This drives down prices across our community: why would buyers pay more to a private owner, when they can get a comparable bank-owned home for less?

This in turn creates another problem for our homeowners with subprime and ARM mortgages. Some of those people would like to refinance, but can’t. Some now owe more than the current market price; that combined with whatever personal financial issues resulted in them having this mortgage in the first place prevent them from getting affordable refinancing. Some of these people are going to have to sell their homes, if not simply walk away. If as few as 2 of them do so, we have raised available housing by a total of 20% across the community.

We haven’t even discussed the impact of a major lender going out of business. While the mortgages owned by such a lender would be sold off — they are assets, after all — that would reduce the pool of available lenders, and available funds with which to make mortgages for honest, bill-paying homeowners. It obviously also reduces the money available to people trying to refinance. In a nutshell, that is why the government has to “bail out” some lenders: not because we are rewarding their bad behavior, but because of the impact on the public.

Most of the currently discussed legislative solutions focus on owner-occupied homes. The reasoning is that investors should have known better and it’s only fair that they sleep in the bed they made. This reasoning fails to account for the decent, rent-paying residents of our community. If these homes are foreclosed upon, the leases are generally terminated, leaving the resident to scramble for a new home through no fault of his or her own. Does that seem fair to you? Furthermore, by leaving these homes out of the “solution”, we have the potential of adding dozens of homes to a real estate market that normally only has 20 available units. The law of supply and demand suggests that is a recipe for plunging prices, a problem which already exists.

Problem exacerbated by the solution.

But what if our community isn’t perfectly average? According to the latest foreclosure data:

In the first quarter, 1 of every 54 homes in Nevada received some type of foreclosure filing - more than any other state. Its largest city, Las Vegas, had 1 out of every 44 homes go into foreclosure.

Stockton, Calif., had the highest foreclosure rate out of any U.S. metro area, with 1 out of every 30 homes receiving a notice - nearly seven times higher than the national average. The Riverside/San Bernardino region had the second highest rate in the quarter, with one of every 38 homes in default.

Only two metro areas in the ranks of the 20 hardest hit were outside the Sunbelt - Detroit, which ranked sixth in the nation with 1 in every 68 households in default, and Cleveland which saw 1 in every 105 homes go into foreclosure.

That means that if our typical community is in Nevada, there’s 7 homes in foreclosure; if it’s in Las Vegas, there’s 9; Stockton, there’s 13; Detroit, there’s 5 or 6; Cleveland, there’s 3 or 4. Multiply all the problems above accordingly. And keep in mind that these problems are currently impacting the economy in a negative way.

Any real legislative solution to these issues must take into account all parts of the problem: lenders, homeowners, real estate investors, renters, even home builders and investors who purchased mortgage backed securities. To implement half a solution is worse than no solution at all.

Cross-posted on Bridget Magnus and ShortWoman.