1. I do think moral hazard will prevent many folks with liar loans from seeing a bailout. They’re the homedebtors who have the least defensible position when they go into default, and the (initial, at least) bailout plans will require that they prove their stated income was legit. The Option ARM, subprime, and prime defaulters will get sympathy, but I’m guessing the liars get thrown under a bus. Given the number of those folks in SoCal, this may limit the effect on the market.
2. With prices dropping at 3% a month, and already at cash-flow prices in some areas, prices may drop most of the way before a more-aggressive foreclosure act takes effect. Especially with the global market crises getting increased attention, I suspect any morally egregious foreclosure relief will wait till next year, but which time we’re down another 10%.
But we all did see major loan forgiveness coming, though, right? Last year, when it was obvious that 25% of California was going to end up upside-down, you knew that either through laws or loss-mitigation, someone would do something to limit foreclosures… it’s just not in the loan holder’s interest to foreclose on a quarter of the state. To assume that wouldn’t happen is to be as shortsighted as the banks that made the loans.
