[unique]

I’ve also had trouble bidding on short-sale houses with no results for months. On the other hand, it looks like one will close in a month or so at a great price.

As a retired banker, I can say that short-sales are a huge and growing problem for banks. Not only is the loss on each one of them generally in the 100’s of thousands, they often have a second attached by a different lender that must be dealt with as well. The thing is - money is so cheap at this time banks are not losing that much by keeping short-sale houses on the books - closing sales results in a huge hit to capital which is a lot harder to manage with capital ratios so low at this time.

Bottomline - government regulators are allowing banks to keep these loans on the books at the amount owed versus market value even when loans are past due - only the worst case scenario loans are charged off and settled within the short sale environment each month to preserve capital - buyers are just left pissing in the wind.

[Paradox]

Bottomline - government regulators are allowing banks to keep these loans on the books at the amount owed versus market value even when loans are past due - only the worst case scenario loans are charged off and settled within the short sale environment each month to preserve capital

Thanks for a short and lucid explanation, it all makes sense now. I know the banks are really getting hosed. I bought my house for %15 of what was owed, at auction..

[VegasCowboy]

Bottomline - government regulators are allowing banks to keep these loans on the books at the amount owed versus market value even when loans are past due - only the worst case scenario loans are charged off and settled within the short sale environment each month to preserve capital - buyers are just left pissing in the wind.

Not true. If a loan is 90 days past due it must be marked down to the market value of the underlying collateral, or a loan loss reserve equivalent must be expensed. Bundled mortgage securities are a little different, but in general must be carried at the present value of the expected future cash flows. This calculation takes into consideration expected defaults.