True. The lenders may have lent out $400,000 for that $200,000 house but, after foreclosure, the lender still has that $200,000 house.
In theory..., that is correct! However, I remember a friend of mine who, employed by a major lender in Central Florida, had his office walls lined with pictures of what was left when the lender finally repossessed homes!
All plumbing fixtures and wall/ceiling fixtures stripped out, water heaters gone, AC/Heating units gone, drywall ripped out so that copper wiring could be stripped, windows smashed! I won't even mention the plain old vandalism which had no profit motive at all!
Many of the lenders "repossessions" were sold for salvage/land value only EVEN THOUGH THE HOMES WERE ONLY ABOUT 5 YEARS OLD!
There will be many bargains for the ultimate purchasers but, the lenders (and most probably the taxpayers) will really take a hit!
It isn’t just that, the lenders have packaged up those $400k loans into CDO’s and other deriviatives, had them rated AAA by ratings agencies in their pocket, borrowed against those “hard assets” with 5-10x leverage and is now left holding these worthless pieces of paper that no-one wants. So that $200k Hard Asset, does not nearly cover the 2-4 million dollars levered against it.
There is a reason why Citigroup and others are writing off billions of dollars.