The change in accounting rules to let the banks hold the assets at original value — or not sell them to reflect a loss– are huge. But it does have an impact on the banks either way. By not reflecting the true price and holding housing stock off the market, they are artificially keeping the price of home higher than it should be right now. That means when the loan on homes today they are loaning at values that should be significantly lower — perhaps why loans have fallen off? You can’t rig the market on one side and not have an unintended consequence on the other. Free markets have to be free to function.
The other issue, of course, is that by holding a million to 1.5 million foreclosed homes off the market, they have a rapidly depreciating physical asset. Have you ever seen what happens to a house when it is not lived in — with heating, air conditioning and maintenance to things like the landscaping, the pool, etc. Not to mention you have the chance of squatters moving in, thieves taking the plumbing and wiring, teenagers setting fires, etc. The cost of ongoing insurance, the cost of security, etc.
Just sitting on the houses waiting for the market to rebound is only going to work for awhile and then it rapidly works against them.
Eich
