By: Dr Andreas Lung

Dr Andreas Lung — Fri, 03 Jul 2009 09:30:27 +0000

The reason why the billions of $ given to the banks didnt work as a remedy is that fact that american credit law isnt changed yet. Any houseowner who ll see a house of same quality than his own but for less money than his remaining debt, can still quit paying his debts, and leave the debt to the bank who looses the whole amount between debt and market value. since marketvalues still falling the tendency will favour even an increase of forclosures. thats what we se now. The tax bonus for first time home buyers is helpful but came to late. The positive and stabilising effect of this measure couldnt anymore outweigh the effect of falling houseprices which will even result in an acceleration in loan defaults. this will result in an exaggeration of falling house prices. Of course there will be an end somewhere but it can stil take a while and its hard to say at which level of houseprices the public demand will lead to an increase again. Im afraid people wait until it will be a level that is nearly ridicoulous and of very low risk to new buyers. However this will lead to an immense turnaround and houseprices will explode. Prices can be estimated to gain 50% of the losses since 2007 within short time. However its hard to say when the turnaround will come. Reagions like california Los Angeles and Miami are clearly in accelerated “Price down” mode. Other reagions are at the brim of stabilization, with slight downside tendency still. he risk is that bad economic news will trigger the fall of prices in that regions again, and then it cant be stopped until we are down another 25 % unless Obama takes new measures to stop it. The only measure however that is surely effective is a change of law, in that way that homeowners will stil be responsible for the remaining differnce in debt if the forclosure earns less than the bank should get. I dont know any country where the law is still like in USA. Its ridiculous that noone seems to realize that this is the key measure. I only hope that Obama or one of his staff will pick up this posting and put it on the table for discuss. Im sure Obama is smart enough to realize that this is really worth a try. He is a lawyer by proffesion and what i dont know is weather the changed law can also be applied to loans that where made in the past. If this could not be assured the effect of the new law will still be a improve – asteady improve but it will be about 30 times slower compaerd to a law that applies to old loans too. In this case the improve might be so weak that downspeed of houseprice might not stop at all but just slow a bit. So far my suggestions . Dr. rer nat. Andreas Lung

Comments on: The Foreclosure Mess

By: Dr Andreas Lung