To Foreclose or Not to Foreclose?

U.S. housing market is in grave problems which have prevented the market from fully correcting so it can rebound. On the one hand, government efforts to make it less painful for homeowners, and on the other, weak banks' inability to shoulder all the losses that a bottoming out would entail, have prolonged prices from reaching bottom. Home foreclosures may have remained lower than expected, but that has not been due to a fundamental recovery. Instead, it has been because of the legal and financial troubles banks face, as well as government efforts to slow them. That might have eased the pain for homeowners, but it has also held back the nation's economic recovery, adding to the woes caused by the lack of credit from zombie banks. The lingering problems of the U.S. housing market are similar to Europe's sovereign blues. Because of weak banks, the necessary restructuring of debt cannot be done. Foreclosing on defaulted mortgages is very costly for the nation and the banks themselves. This chapter discusses the most important question ‐‐‐ to foreclose or not to foreclose ‐‐‐ that is heaving burden in U.S. Housing market.