How I feel about asset devaluation is irrelevant. Home values are going to drop until they are done dropping. The issue is how to minimize the collateral damage of loan defaults. These properties are going to get marked to market one way or another. The creditors can mark to market asap with the current borrower staying put and get a performing modified loan working, or the creditors can endure zero cash flow on a defaulting loan for 6-9 months, incur foreclosure expenses, and carry the property (mello-roos, taxes, etc) until they eventually dump it in an REO fire sale (probably for less than what they could have re-written the original loan for).
