[quote pri_dk]
Another problem with the general “let the market settle where it may” approach is that it ignores transaction costs. Sure, we can let all these homes sit vacant, move slowly through the courts over many years, sell them at auction to investors and eventually have the same people back in them as renters. That would be the textbook “market” approach, but it carries a lot of deadweight loss – $trillions in assets sit idle and lots of money goes to middlemen who create no real value.
[/quote]
You are assuming that I am a proponent of this approach – effectively another strawman argument.
If the bank takes possession through foreclosure, they should be responsible for the house as an owner would be. This includes property taxes, HOA fees, MRs and maintenance of the property.
This way, while it is vacant, it is costing the bank money and time. They would rather have the money producing something than costing them.
PS: what you mentioned above is not considered a ‘transaction cost’. It is more akin to ‘opportunity cost’.
[quote pri_dk]
$trillions in assets sit idle and lots of money goes to middlemen who create no real value. Transaction costs in real estate are huge, and even bigger when they involve a legal process like foreclosure.
[/quote]
The huge cost is a cost in the foreclosure is a cost to the bank, and it is largely due to inefficiencies in the bank. Not all banks have that problem, and some are getting much more efficient at foreclosures. Remember, when a bank loans out money, that money has to come from somewhere… most likely peoples pensions, CDs etc (other peoples money). These ‘other people’ want to be paid too, so the money the bank is lending out, is not free to the bank.
