Sunday, February 15, 2009

Two Bad Mortgage Scenarios

Case Study in the Market for Homes with Bad Mortgages

Link to BW "How Banks are Worsening the Forclosure Crisis"

P 1:

Home owners in bad mortgages don't deserve to be rescued.


a. let the banks foreclose, and the sooner the better. Homeowners take their earnings assuming they have jobs and rent until they reestablish credit to purchase another home.

b. new prospects need to be found to take foreclosed homes off the market.

c. work is created for realtors, movers and people who clean up and fix homes (and credit) for resale.

P 2:

Plenty of people with money will come forward to purchase these homes at the right price.


a. the market will be readjusted asap. This is the best case.

b. many homes remain vacant and neighborhoods deteriorate.

c. homes are leased/rented at market and neighborhoods deteriorate at a slightly reduced rate.

Compare Alternative Case A

P 1 Saving the homeowner is necessary condition for economic recovery.


a. bankruptcy courts readjust mortgages to a reasonable market rate.

b. mortgage holders do so on their own initiative.

c. market will be readjusted asap.

Alternative B

Homeowners walk.

White knight purchases homes at short sale and resell/release to the original homeowner.

See P 2, above.

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