In my previous blog I talked about how this "freeze" (that could soon may become a "moratorium") benefited those who were about to lose their homes by allowing them to live rent-free for a few (or a lot) more months.
What's the downside? Plenty. A lot of "gurus" had predicted that sales of foreclosed homes would continue until about the end of 2011. But because lenders now will have to review all of their foreclosure procedures and documents for each and every file on a home they are about to foreclose, they are predicting that this "mess" will continue another 3 more years.
Real Estate Agents are immediately negatively impacted by this. How? They cannot sell REO's (Real Estate Owned) houses. No sales, no money! For REO Listing Agents, this is the only source of income. Ouch!
Banks are not getting paid on their loans. When a borrower stops paying, this becomes a non-performing asset. That's when they start the foreclosure process against a borrower (homeowner). They will take a hit on these assets. They will either sell the notes at a great discount to people or business with CASH or eventually they will own the property REO and will take the loss when they sell it.
What do banks do in this situation? They don't loan money! If you cannot borrow to buy a home, a house is NOT sold. This will eventually create more inventory of unsold homes and the price will have to go down, according to the laws of supply and demand. Is this good?
I will continue my thoughts in the next blog.
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