Your neighbors house will be worth less,
Then maybe they should default as well?
In all seriousness, it's interesting how people demonize people for driving prices down, but no one says anything about the people who drove them up were they didn't belong in the first place.
Also, at the end of the day, who's really responsible for the low price of a distressed sale? Doesn't the bank have other options than just dumping their REO inventory onto the market, much if which is in disrepair?
the bank will suffer a loss,
Yes, but banks have Private Mortgage Insurance, which borrowers pay for. Plus they have loan loss reserves and capital requirements.
the bank will raise mortgage rates to borrows to offset the loss
This is not true. When a borrower
defaults, his risk of default was already calculated
and priced in when the loan was originated. Banks are a lot more proactive than that.
If mortgage rates were dependent on default rates, then why do we currently have the lowest rates in generations after all the defaults we had in the last 5 years?
The bottom line is that the banks know what they're doing. They write all of the verbiage in the mortgage. They write the note. They assume a risk when they lend money and should price that risk accordingly. If they fail to its not the fault of the borrower.
This post was edited on 10/12 at 10:53 am