[quote=DWCAP]
Why? Why should they have? Your statement about ‘driving houses down further’ doesnt hold too much water. By just about any reasonable metric housing prices are either ‘fair’ or ‘over’ priced in the majority of the USA, with the possible exception of Detroit which has been on a downwards sprial for 40-50 years now. In SD they are flying off the shelf. So the argument is that banks should have done mass modifications so that prices could have stayed overpriced and the people who would have benifited the most from increasing prices/leverage can also benifit from decreasing prices/leverage too?
Please define the reasons for “should”.[/quote]
First of all, my reasoning is purely based on the motivation of the lenders. It has no element of morality because I don’t think that any moral judgement should play a part in lenders deciding whether to foreclose or modify. It has nothing to do with the borrower. It should only have to do with the collateral.
I think that if lenders modify for some qualified borrowers, rather than foreclose, it provides stability to the market. It would have been a fruitless exercise a year ago (as the track record for the very few modifications will attest) But ultimately, fewer homes on the market, less downward pressure.
Without undue influence, prices are always right. From 2002 through 2005, there was undue influence because of lending practices. An abundance of distressed properties on the market the last 2 years has provided an opposite undue influence. Prices will find a stable level only when distressed properties become a minor part of the inventory. That stability should be the goal of both government and lenders policies.
