All these writedowns, that these institutions are announcing

0.10 Dollars($)

Is that because people are foreclosing and short-selling?

When u do that, a person ruins their credit, but the banks take the financial hit?

so it all just adds up to these incredible sums of money (in the billions)

Guest 0.10 Dollars($)

Hi Guest,

Yes, that's true. I think that's the major issue which has been hitting the U.S. market.

Jessica

Yes indeed, the write down/losses suffered by the mortgage companies and even some of the big banks are mainly due to the subprime market downturn. That is, people who have taken mortgages even with credit just because they qualified at higher rates (subprime loans) have defaulted on their loans and have either gone through foreclosure or short sale or deed-in-lieu.

In most cases of foreclosure or short sale, lenders have had to cancel the remaining debt, that is, the deficiency amount as a result of which they've been facing financial problems and being unable to cope up with the market situation, they've even filed for bankruptcy or at the most suffered huge losses.

Morgan Stanley is reportedly said to have suffered a $5.7 billion of mortgage write down in November in additional to $3.7 billion write down in October. The Swiss bank UBS has recently reported it's first quarterly loss in the past 5 years and this is mainly because it invested in options tied to subprime mortgage market.

Earlier in October, BofA (Bank of America), Merrill Lynch & Co. and Citigroup Inc. have suffered similar kind of losses. Overall nine major banks have reported suffered losses till now and the number could well be more considering the fact, the market hasn't quite overcome the subprime crisis. As a result, foreclosure rates are still quite high in certain states and to avoid being into it, borrowers re moving on toward short sales.

However, to help borrowers fight out the situation, the government has now passed the Mortgage Tax relief as a result of which if there's a foreclosure or short sale and you aren't able to pay the deficiency, then you need not pay taxes on the canceled debt. However, the law will be enforced for the next 3 years to come.

Regards,

Jessica

scherzeroni · Joined: 05 Jan 2008 Posts: 51 18.77 Dollars($)

Its mostly because the banks loaned to people that could not afford the mortgage. They were giving loans with no money down for investment property and then didnt even require verification of employment. Many of these went into foreclosure and many are in default.

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