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Look, there's another way to interpret this:

- Banks are not our friends and they don't care if we (homeowners) go underwater

- Also, they don't collect the 20% collateral, you have to pay it directly to the realtor's company (security deposit +1d after you both agree on the transaction AND the remaining of collateral by the closing date) -- meaning this doesn't go to the bank, that lends you the 80% standing out payment (this goes to the realtors' company and after taking their cut the seller receives it in full, but after closing date)

- The collateral payment is just a way to guarantee that you get into the loan really exposed, with skin in the game, meaning that you HAVE to pay, otherwise if you default, you lose all of the collateral and the bank can dump the house at face value on foreclosure, pocketing-in any interest already paid off

Fiat Shenanigans 🤡🌎 1y ago

Gibberish.

The balance of the loan must be less than the future sale value of the home so that when you default and they take you home they can recoup most of the remaining loan balance. That's why they require a down payment.

Same goes for cars, which only depreciate. As a rule of thumb, (and this is especially true of used vehicles), the amount of down payment you're required to put down is the amount that the dealership is overcharging you, which is why the bank won't cover it. You know you're getting a good price on a used vehicle if the bank is willing to cover 100% of the sale price.

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Discussion

freakazoid 1y ago

which part of the banking not pocketing-in your collateral you don't get?

if you had a mortage you would know the collateral goes to the seller on the closing date

and the bank loans you the remaining 80% of the total sale price

collateral is made so you feel the obligation to pay off your debt even if you carry the loan until your death (and that's the plan)

Fiat Shenanigans 🤡🌎 1y ago

No. The bank doesn't care about you having "skin in the game." You're misinformed. They only care about risk. How much can they recoup in a short sale after they reposes your home?

When they start offering zero down mortgages in a housing bull market it's because they are confident that the cash value of your home will keep increasing, so they're willing to finance 100% of the sale price instead of just 80%.

freakazoid 1y ago

do you really think the RISK of defaulting a loan (ANY loan) is the same for:

Person 1: paid 20% collateral

Person 2: paid NOTHING as collateral

Think again...

Sorry to burst your bubble on the "patrol of the truth" my dude, but *you* are misinformed.

Putting collateral or not, factors-in A LOT during the underwritting process (you know they have underwritters signing-off before releasing the loans, right?).

Again: it's ok to not being aware of this if you've never went to this process. Now ignoring this fact just to prove a point in a conversation with another anon it's another completely different thing. Have a great day!