That’s a really interesting mechanism to mitigate risk. Is it the default risk where tenants who can’t pay rent would possibly also default on mortgage if they had purchased?
Exactly, they're very foreclosure averse because it costs a bunch in legal fees and other expenses and loses them a ton of interest money. In some states foreclosure can also be a 4+ year long legal process that mostly happens on the bank's dime. Then they now become in charge of upkeep on the house as well as selling it, typically at a discount from its actual market value.
Banks really like sure things, that's why they have switched to consumer debt products after 2008. When they give you a credit card the limit is typically a number they predict that you can max out and comfortably pay interest on forever. Low risk of default but nearly guaranteed interest money from the customer and guaranteed interchange fee money from merchants.
That’s a really interesting mechanism to mitigate risk. Is it the default risk where tenants who can’t pay rent would possibly also default on mortgage if they had purchased?
Exactly, they're very foreclosure averse because it costs a bunch in legal fees and other expenses and loses them a ton of interest money. In some states foreclosure can also be a 4+ year long legal process that mostly happens on the bank's dime. Then they now become in charge of upkeep on the house as well as selling it, typically at a discount from its actual market value.
Banks really like sure things, that's why they have switched to consumer debt products after 2008. When they give you a credit card the limit is typically a number they predict that you can max out and comfortably pay interest on forever. Low risk of default but nearly guaranteed interest money from the customer and guaranteed interchange fee money from merchants.