It wasn’t long ago that the downturn in housing was mainly focused in specific cities with artificially inflated prices.

But the mortgage lending crisis that has pushed the nation’s financial services sector into a meltdown has spread throughout the economy.

“The damage is national,” said Julia Gordon, policy counsel at the Center for Responsible Lending.

The places affected range from Massachusetts to fast-growing states like Nevada, where housing prices have plummeted from stratospheric levels, to Michigan, where home prices didn’t appreciate as much but where any drop in home values is hard on communities with high unemployment.

How bad is the problem?

Over nine months that ended in June, Americans collectively lost $1 trillion in home equity, estimates Christian Weller, an associate professor at the University of Massachusetts. It was the largest drop since 1974.

Many people nearing retirement had been counting on their home equity as their primary source of income.

Home foreclosures have quadrupled over the last four years from 75,597 in August 2005 to 303,879 in August of this year.

“It is comparable in some neighborhoods to being hit by a major hurricane,” Gordon said. “Except this was not an act of God. This was an act of man.”

This loss in home value and the spreading economic instability is on the top of voters’ minds, as could be seen in the recent town hall-style debate in Nashville, Tenn., between presidential candidates Barack Obama and John McCain. One frustrated audience member asked the candidates, “How can we trust either of you when both parties got us into this global economic crisis?”

Home Losses

“Traditionally, 50 percent who go into foreclosure end up losing their homes,” Chris Varvares, president of Macroeconomic Advisors in St. Louis. “It may be the case that this time it could be a little higher.”

Congress in July set up a program to help up to 400,000 homeowners refinance their mortgages with 30-year, fixed-rate loans. But housing advocates say it addresses only part of the problem.

The program is voluntary, and lenders may decline to participate because they could lose money. The lender must be willing to accept a new mortgage that’s equal to 90 percent of the home’s current value and write off the old loan, possibly losing tens of thousands of dollars.

The financial services industry, despite its dire situation and need for a $700 billion federal rescue package, successfully fought off efforts by some Democratic lawmakers to impose a freeze on new foreclosures and to allow bankruptcy judges to rewrite the terms of loans on primary residences.

“All the counseling that has been set up, et cetera, may have made it less worse, but it certainly has not broken the cycle,” said Sheila Crowley, president and chief executive of the National Low Income Housing Coalition. “The housing foreclosures continue at an alarmingly high rate and the problem now is not just the junk subprime loans, it’s people who did prime loans but they did adjustable rate mortgages assuming they could refinance because the value of their homes would go up.”

According to Gordon, the brokers, lenders and Wall Street financiers were all culpable.

“This crisis was not driven by millions of homeowners clamoring for adjustable rate mortgages,” Gordon said. “It was driven by Wall Street finding an easy way to make money going back down the chain.”