Wednesday, October 01, 2008

 

Handling the Housing Default Side of the Crisis

Part of the problem is that when default risk went up, buying slowed and so values on homes went down. This means that for many people, if they sell they are still stuck with a sizeable debt and no asset to lose if they default on it. And banks end up with an oversupply of properties it can only sell at firesale prices, which push home prices down further.

Here's a way to mitigate some of the problem.

Upon sale or foreclosure, the bank gives the borrower foreclosed properties on its books for the value, or partial-value, of the remaining debt.

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