Thursday, July 9, 2009

How to deal with foreclosures

The Economist reports on a recent Fed study that tries to explain why so few mortgages that are in default are renegotiated. Turns out, it is not really because of securitization. Instead, banks tend to be reluctant to renegotiate because a) many renegotiated loans end up defaulting anyway and b) some loans that are in default "cure themselves" - in other words - come out of default. So more often than not, not doing anything is the best strategy.