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October 25, 2011

More than one and three homes are under water now.  Not the wet kind of water.   The other kind.  Houses are not worth as much as the amount owned on them.   That kind of underwater.  That leaves the lenders in a quandary with no solution that will allow them to recoup their outstanding balances on their loans.  All they have is some poor choices.  They could do nothing and collect what they borrows continue to pay, if they pay anything.   They could refinance at lower rates or modify the loans to the present value of the properties.  They can accept short sales, cancelling their mortgages for what the borrow can sell the house for.  Neither of those options will allow them to get their money back.  They could foreclose.  But then what.  They can’t sell the homes they foreclose for more than they are now worth.   Banks don’t rent out properties they foreclose.  They put them on the market to sell them.  Until they sell, they sit there vacant, lowering the market value of the home around them.  And they can foreclose and manage only so many at a time.  This process is going to take a while to work out.  In some locales, the banks are razing the houses they foreclose. Avoids liability and makes sense if there is no market and the homes need repairs. Any money spent on upkeep or maintenance, taxes or insurance would be a waste.   Again, this is going to take a while to work out.   And while it’s working out, we will have no recovery.  The quickest way to out of our mess and start a recover, and the best option for the lenders to cut their losses is to modify the loans so that homeowners can make their payments, or accept short sales so that the homeowners can move on.   The worst options are to do nothing or to continue with mass foreclosures.

From → Observation

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