Good thing housing is becoming more affordable due to REO's and short sales, creating a new market of homebuyers.

Chico

Well written article, but I strongly disagree about your assertion that the Obama Plan (HAR and HAM) are doing anything to help people. Less than 25 percent of submissions under the HAM are accepted, and of those the vast majority of successful cases are done with the help of an attorney.

The HAR is completely impotent, largely due to the 105 percent Loan-To-Value requirement. It is common knowledge that a large majority of the homeowners in trouble are upside down.

The government would step out of the assistance business altogether, and allow the market to correct itself. It would be painful, but worth it. There is still traditional loss mitigation (and I concede that it is a troubled industry with all of the fraud). But with a reputable law firm many homeowners are getting the help they need.

Onofrio Pentolino

How does any of this foreclosure activity make any sense?

Banks based on personal experience are unwilling to deal with borrowers who are not in default and  of those who are are typically unwilling to give more than a 10% reduction in mortgage payments.  When the work-out fails and the foreclosure process begins banks must wait substantial periods of time before they can take ownership of the property.  And this is only true if the  defendants don't have counsel.  If they do it will likely take longer and/or  they will  not get the property at  all.

When they do sell the property I understand that banks are getting perhaps 20% of the original value of the house.

What makes this worse is that a lot of buyers are walking away because the house is upisde down.

It seems that what is wrong with this  is the neoliberal proposition that these matters are private and the equally narrow view that these are problems of individuals rather than a macro-economic problem.  This is  a public problem with macro-economic impact, it needs a public solution and a systematic solution.

The predatory approach of simply swooping in to get houses at firesale prices achieves "savings"  at the expense of  many homeowners loosing all their dreams. I realize the stereotype of  the homeowner in foreclosure is someone who borrowed for $3000 a month when they only make $2000.  But  these kinds of caricatures get in the way of the larger problem.   Thousands of  responsible  people got screwed because houses which were valued at  500,000 is now worth half that.  They had no way to foresee that.  The  bank didn't.  And Greenspan didn't.  He said, "there is no bubble. We don't have bubbles in real estate."

We need to move away from  hidebound assumptions of  the borrower is a bum, that this national disaster is a private problem, or that we can afford to simply let the courts handle it on a case by case basis.

The housing crisis is like a flood, it is polluting the economy with people who are loosing jobes because of dislocation, it is sinking whole industries which depend on real estate sales,  it is  devaluing whole communities.  Until we fix this hole in the levy- the flood of foreclosures- saving a few drowning  Wall Street bankers won't help.  Let me see if  I can say this plainly- the housing crisis is driving the recession.  It  is the hole in the levy.   We fail  to  deal with this  at  our peril.

See Bailouts, Bubbles, and the Social  Construction of Economic Crisis on

SSRN