They “have to” reinflate to 2005 pricing (or believe they have to) to make the balance sheets actually reflect market again (what they say their stuff is worth is actually what it’s worth). Of course that’s only for the mortgages on the balance sheets of the banks or MERS or whoever.
Just for grins let’s extrapolate what they maybe are trying to do. So say they get prices back up to bubble levels. Maybe then the pigeons (homeloaners) in these mortgage can/will sell– for more bubble prices. The only people who will be able to buy at bubble prices will be those who get new “magic mortgages”. The only way to keep the new magic mortgages from blowing up will be to have them not ever recast/reset. I.e. the new pigeons pay pennies on the dollar per month and way less than needed to actually repay the loan, forever. If the prices keep going up above 2005 bubble levels, the only way to keep the pigeons in these houses will be to reduce their interest rate down and down until it is zero. Next thing you know, they will be in the house for practically free– but be paying the bank in perpetuity and never own the house free and clear.
