“Can someone explain to me why stopping foreclosures will have a negative impact on housing? You’d think the opposite would be the case since foreclosed homes would flood the market bringing prices down even lower.”
Well, for starters every sentient person with a mortgage will stop servicing it as the lenders (at least in single action states) will have no way of collecting the debt. At that point, the U.S. banking system will be forced to writedown mortgage assets to virtually nothing, stripping them of capital and leaving every bank in America insolvent. Buyers of private label MBS (and likely Fannie and Freddie paper as well) will launch lawsuites against every commercial and investment bank that issued securities collateralized by U.S. mortgage loans for misrepresentation of material facts in the MBS prospectuses and for breach of pooling and servicing agreement representations and warranties.
Investors will never purchase dollar denominated asset-backed securities again and may think twice about U.S. corporate and government debt as well. In short, the global capital markets and economy will be reduced to ash.
But that’s okay, deadbeats won’t have to lose “their” homes. Isn’t that special?
Very succinct analysis. Unfortunately it’s going to happen no matter what anyone does. The cover has been ripped off this scam. No one is going to trust the US banking, mortgage, or securities industries for decades.
Are you going to stop paying your mortgage?
Thank you. Very clear explanation. I guess it basically means there will be no money to lend. At the low rates today it’s almost there already.