In January 2008 report Center for Responsible Lending (CRL project that 40.6 million neighboring homes will experience devaluation because of subprime foreclosures that take place nearby; the total decline in house values and tax base from nearby foreclosures will be $202 billion; and the homeowners living near foreclosed properties will see their property values decrease $5,000 on average.
   This paper examines the dynamic causal linkages between subprime mortgage financing and foreclosure. This paper uses panel cointrgration cointegration techniques and U.S.  pool cross-sectional and time series data for the period 2005 and 2006.. The findings of this study are expected to enhance our understanding of their inter-relations. An appreciation of macroeconomic dynamics of stock market, housing market, and consumer spending can shed light on the markets’ response to monetary policy, providing the Federal Reserve System the much-needed wherewithal.