I’m not suggesting we’re headed for a depression (I know far too little to suggest such a thing), but I do think you’re overlooking the ancilliary effects.
Such widespread foreclosure would certainly put extreme downward pressure on home prices across the market. This puts a serious dent in the housing ATM which reduces non-housing related spending.
New home starts would continue to decline (all this inventory is now available), so there would be significant job losses in all housing related fields. Higher unemployment, further reduced spending in all areas.
Reduced spending causes job loss in non-housing related fields, further reduced spending.
It’s never just the one isolated thing, rather cause and effect just as things always have been.
