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 I think the disappeared money is imaginary Hi Eric- Thanks for the comments! I understand what you're saying, but in this case the money isn't imaginary. It's the amount that bank actually loaned on these properties previously. So, let's say the bank loaned Joe Blow $100,000 for House A. Joe Blow defaults. Because of loan terms, he hasn't paid down any of the principal even if he made mortgage payments for a year or two. The bank forecloses on the loan. It repossesses the house, then sells it to Mr. and Mrs. Homebuyer for $75,000. The bank takes a hit for $25,000. Banks will of course use more sophisticated accounting techniques but they're still losing real money here from failed loans. The $2.1 million in the story came from adding up all of the failed mortgages and subtracting how much banks eventually sold the repossessed homes for. Hopefully that's clear! -- Gretchen  
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