Daniel: >> > foreclosure *is* the market's solution to a problem (the problem of >> > a delinquent borrower). It's not a further problem in itself, for >> > the bank.
Doug: >> Well, it can be, if the bank ends up with a lot of houses on its >> hands, and no buyers. David: > You mean no buyers "at a price the banks are willing to accept." There are > plenty of > bottom feeders, vulture funds, etc. who are willing to buy almost any > distressed asset if > the discount is sufficient. with a glut of houses on the market, either way this hurts the bank's net worth. They've got assets that either can't be sold (due to demand constraints such as a shortage of credit available to bottom-feeders) or can be sold only at very low prices. Their liabilities don't go away. This might push the banks to bankruptcy or negative net worth, if their loan loss reserves aren't enough. By the way, if a bank owns mortgage-backed securities, does it hold loan loss reserves? Are banks allowed to own such securities? -- Jim Devine / This space for hire.
