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The surprising ways foreclosures make housing-market downturns even worse

The massive wave of foreclosures that wreaked havoc on communities across the country is among the most significant hallmarks of the previous recession.

But new research is shedding light on how much worse foreclosures made the last downturn in the nation’s housing market.

A new working paper authored by researchers at Boston University and Stanford University investigates the ways in which foreclosures exacerbate a housing bust and reduce prices for non-distressed homes. The researchers also investigated foreclosure mitigation approaches and proposed a novel way through which government officials could stem the onset of future housing downturns.

For starters, the wave of foreclosures caused major financial losses for lenders — especially when they kept the loans on their books rather than securitizing them or selling them to mortgage giants Fannie Mae