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Strategies & Market Trends : Value Investing

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To: Paul Senior who wrote (30423)	3/26/2008 6:47:05 PM
From: Madharry	Read Replies (1) of 78672

sombody buys an $800,000 house with no money down. they are paying $48000 in interest alone. if the price of the house drops by 20%, they have now lost $160,000 with no upturn in sight. why should they not turn the keys back to the bank, walk across the street and buy a house from some motivated seller, or better yet rent with an option to buy. now they can potentially own a comparable house for $640,000 and probably save about 20% by renting vs. paying interest on the overvalued house. Of course they may also have been living finance free in the house for a couple of years until the foreclosure process is completed. some people like paulson might call it reneging other people might call it sound business practice. I pretty sure the homebuilders will take a chance on such people especially if they are now willing to put money down. Thats why I think the financials have not stopped going down yet. I also wonder how the fed is going to treat mortgage collateral that is in default. do they return it to the lender for collection? get substitute collateral that hasn t defaulted or do they pretend that its still AAA paper? interesting.

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