Falling house prices, tighter lending standards and rising foreclosures have created a vicious circle for struggling US homeowners, sucking in growing numbers of borrowers who cannot sell their homes or cover their mortgages.

In recent months, there have been signs that even prime borrowers, representing the highest tier of credit quality in the mortgage market, are beginning to feel the pinch. Until recently, the effects of the housing slump were most keenly felt by overstretched homeowners who took out subprime or so-called Alt-A mortgages.