Mortgage Modification is Really Job Stimulus:
There is much serious commentary about my column in the WSJ yesterday, but this is an amusing one I received:
Thank you for your excellent & long overdue editorial in today's WSJ. However, as a real estate appraiser who specializes exclusively in litigation, Conyer's bill would enable me to equate the bankruptcy court with an annuity.
So as I replied to him--the way to think about bankruptcy mortgage modification is really as part of the job stimulus plan by creating jobs for appraisers!
That being said, FASB has already passed several full employment acts for appraisers, without even the need for congressional approval. See FAS 141, FAS 142, and apparently FAS 157.
If the goal of modification is to make it worthwhile for occupants not to move then they'll be busy until the government buys the effectivley foreclosed properties &other mortages, or the total cost of ownership in effected areas becomes comprable to the rest of the nation. However, this may not be too far off.
Note: this is my understanding of what happens, as explained by another with some experience in the market, so I could be very wrong.
Loan defaults are the toxins in "securitized assets." Like heavy metals or hormones in the food chain, they will not evaporate. Sooner or later they must be removed. Sooner is better than later.
Seems like I heard Obama mention loan servicers once but I can't recall when. Normally they run relatively small operations for whom foreclosures and transfers are little more than an administrative task. But workouts will require more man-hours than they have, which means new jobs.
Perfect illustration. A loan in default is not the same as a loan in foreclosure. Between those two options lies a "workout" which avoids a liability (write-off/foreclosure) by protecting an asset (expected future return).
The current rash of foreclosures is creating a whiplash in the real estate market allowing those with resources to snap up real estate at prices way below what should be a fair market value.
If one of my neighbors can work out a deal to avoid foreclosure on a house nearby, my property value benefits indirectly. However if he is forced into foreclosure his house will likely go vacant or be converted to rental property.
Real estate foreclosures are becoming an economic death spiral. We can blame buyers, lenders, brokers or womever til the cows come home, but now that it has started something has to apply the brakes.
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