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Foreclosures, The Good and The Bad

This post was written by jd on December 16, 2009
Posted Under: Real Estate
Former mortgage company Countrywide Home Loans failed because of their risky mortgage practices and was taken over by Bank of America

Former mortgage company Countrywide Home Loans failed because of their risky mortgage practices and was taken over by Bank of America

The good and bad of foreclosures is a mixed bag.  The bad is that banks which pushed these risky loans are going to take a bath.  The bad is that people who are being foreclose on either because of being tricked into a bad loan or loss of income, are going to have bad credit ratings.

The good is that those people who have lost their homes will now have more money to spend.

According to the Wall Street Journal

“Analysts at Deutsche Bank Securities expect 21 million U.S. households to end up owing more on their mortgages than their homes are worth by the end of 2010. If one in five of those households defaults, the losses to banks and investors could exceed $400 billion. As a proportion of the economy, that’s roughly equivalent to the losses suffered in the savings-and-loan debacle of the late 1980s and early 1990s.

The flip side of those losses, though, is massive debt relief that can help offset the pain of rising unemployment and put cash in consumers’ pockets.

For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven’t paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month — an injection that in the long term could be worth more than the tax breaks in the Obama administration’s economic-stimulus package.

“It’s a stealth stimulus,” says Christopher Thornberg of Beacon Economics, a consulting firm specializing in real estate and the California economy. “The quicker these people shed their debts, the faster the economy is going to heal and move forward again.”

So as everything in life, there is the good and the bad, what do you think?

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