Addendum

[jhetley]

It's worth noting that all the "bad debt" out there doesn't represent a dead loss.  Each mortgage has a genuine tangible house behind it, for example, with a market value somewhere greater than zero.  May be $300K rather than $400K, may take a few years to move, but it ain't zero.

Comments

[rarelytame.livejournal.com]

Certainly that is true, but I can't help recounting this incident from my own neighborhood (and I really think this has no bearing on the post, I guess. Still, the bailout thing seems scary to me):

Quite some time ago, a neighbor's house was repossessed. It sat abandoned in our neighborhood for a long time--probably close to a year--and then one night it burned down. Later, there was a large sign in the very overgrown yard, asking for anyone who had any information about the arson to come forward to the police. I assumed that the mortgage company's insurance would surely rebuild the house, but here it is yet another year on, and the lot still sits empty. (The house burned clear to cinders, leaving only a brick foundation.) I have no idea what the lot would be worth without a house on it, but certainly, someone lost money there. If not the mortgage company, than the insurance company. And at the time of that fire, there was a streak of similar fires, including one where the abandoned house apparently had a body inside--perhaps a vagrant, but no one knows.

I don't pretend to know how much impact events like that have on the overall scheme of things, but I definitely don't feel good about the empty lot in our neighborhood, with all the overgrown grass. And it affects all the other home values in our neighborhood as well, because it's an eyesore. This "bad debt" spreads in many ways, I think.

[jhetley.livejournal.com]

If I was the next-door neighbor, I'd make an offer on that lot. Double lots sell for a premium around here . . .

[cymrullewes.livejournal.com]

There has been talk that if the current owners were allowed to renegotiate their mortgages there wouldn't be as much defaulting/foreclosure. But will our current government actually create an agency to go to each and every one of those owners and help them determine what mortgage they can afford?

[jhetley.livejournal.com]

The "resolution trust", by whatever name, certainly should. Whether they will or not . . .

As you may have noticed through the years, I don't place much trust in the sane behavior of governments.