Originally Posted by Doctor Who

Okay john. I'll explain it and be brief. When the bank takes a house, it will get rid of it at almost any price. Banks don't want to own the real estate. They don't "loan to own". By the time they have foreclosed and sold the house, they have lost a minimum of 20% of the original value. (That's why they like to see 20% down so the buyer losses, not the bank...see how that works?) So it's called a fire sale. When your neighbors house sells for less than they paid for it, the value of your house goes down as well. Now, one foreclosure in your town isn't going to bring down the values in the whole town. But 50 or 500 will and thousands devastate the market. The problem was that a lot of people stopped paying their mortgages. It snowballed into what we have today. Derivatives have nothing to do with the value of homes. People buying and selling the homes determine the value. Banks, insurance companies and investment companies have nothing to do with that. They only facilitate a purchase that has already been agreed upon.