It was reported recently than more than one million homes were foreclosed on in 2010, an all-time high. Many are predicting this number will be easily eclipsed in 2011. Since I'm not an economist, I'm having some difficulty understanding WHY so many banks are in a mad rush to foreclose on as many properties as possible. Maybe someone out there could explain it to me.
The way I see it, having so many homes on the market at one time would decrease sales prices. Couple this with the fact that home prices are falling anyway and it would seem that sellers would want to hold onto properties until housing prices started to move in the other direction.
And there's another problem. With so many people out of work, wages remaining stagnant or falling and banks not offering loans, there are fewer buyers available. This again would lead to lower sales prices.
So, how do the banks profit from all these negative variables?
The way I see it, having so many homes on the market at one time would decrease sales prices. Couple this with the fact that home prices are falling anyway and it would seem that sellers would want to hold onto properties until housing prices started to move in the other direction.
And there's another problem. With so many people out of work, wages remaining stagnant or falling and banks not offering loans, there are fewer buyers available. This again would lead to lower sales prices.
So, how do the banks profit from all these negative variables?
I doubt this is much of an explanation, but the thought occurred to me the other day that much like our dysfunctional legal system, mortgage bankers and most if not all other business folk seem determined to follow the letter of the law to it's bitter end, regardless of the damage it may do to anyone or anything in the path. It's like blind faith in a flawed idea carried to its only logical conclusion.
ReplyDeleteThen again, another thought just occurred to me; though very unlikely. What if those following through with this insanity are actually working to hasten the demise of a doomed business model. It would almost be considered a kindness in the longer view of things.
Surely I'm mistaken.
I don't understand why, but somehow banks consider debt wealth. That is the foundation of our financial system, actually.
ReplyDeleteIf all assets are liabilities (Accounting 101), all liabilities are assets. (At least to a bank.)
ReplyDeleteI have a friend who was facing foreclosure, but is actually going to do a short sell on the bank's advice. It's been very tedious. She says she never wants to have a mortgage again, ever.