3 ms·

It is worse than you were wondering. In the US, and it turns out most Western nations with "modern" banking systems, there is either outright or quasi-governmen

It is worse than you were wondering. In the US, and it turns out most Western nations with "modern" banking systems, there is either outright or quasi-governmental support for taxpayer-guaranteed mortgages. The general public, as you, are for the most part completely unaware of this. A common "business" in the US is to use various "housing assistance" programs to leverage cash for non-owner occupied housing. These debts are dischargeable in bankruptcy. Generally there are limits to about $2M aggregate and/or 7 properties, depending upon how you work the system. A great many of these "investors" are real estate brokers. Imagine if your government announced software developers could get 3-10% cash down leverage on up to 6-7 $300K simultaneous projects. If you fail, the taxpayer picks up the tab. And you don't even have to go through YC to get it. Just show that someone else sold their similar project for however much you are proposing you get funded for. One way to reform this system is to simply turn non-owner-occupied housing into non-dischargeable debt, with a 7-year phase-in on all legacy debt, and disgorging such mortgages back into the private market.

jrs235 12y ago
If you default, you lose the asset. The assumption is that the assets are minimally worth the value or the loans. Your comparison to software projects is way off. With mortgages there is a tangible and physical asset.
- yourapostasy 12y ago
  A software project that actually delivers code possesses the potential to generate income in a way that residential homes do not. In that respect, granting loans on flimsy pretexts to software projects is better than to non-owner-occupied homes. If it pleases you, imagine loans to anything else that this crowd works with on a daily basis. Don't let the analogy distract you from the core thesis pointing out the perverse incentive structures raised around residential loans leading to undesirable policy outcomes. I'm very hard-pressed to come up with any other business where 4-5 figure sums of USD cash can lock in 6-7 figure values of assets, at preferential interest rates, over very long payment terms, with only consumer-grade credit ranking and formulaic "comparable value" asset analysis for loan approval. If you've ever owned a business for any length of time sufficient to talk with your business banker about credit terms, you'll immediately recognize the extreme disparity between those terms and normal business loans and lines of credit terms. It is indefensible to pledge taxpayer financial support to real estate businesses via these loan vehicles.

jrs235 12y ago

If you default, you lose the asset. The assumption is that the assets are minimally worth the value or the loans. Your comparison to software projects is way off. With mortgages there is a tangible and physical asset.

yourapostasy 12y ago
A software project that actually delivers code possesses the potential to generate income in a way that residential homes do not. In that respect, granting loans on flimsy pretexts to software projects is better than to non-owner-occupied homes. If it pleases you, imagine loans to anything else that this crowd works with on a daily basis. Don't let the analogy distract you from the core thesis pointing out the perverse incentive structures raised around residential loans leading to undesirable policy outcomes. I'm very hard-pressed to come up with any other business where 4-5 figure sums of USD cash can lock in 6-7 figure values of assets, at preferential interest rates, over very long payment terms, with only consumer-grade credit ranking and formulaic "comparable value" asset analysis for loan approval. If you've ever owned a business for any length of time sufficient to talk with your business banker about credit terms, you'll immediately recognize the extreme disparity between those terms and normal business loans and lines of credit terms. It is indefensible to pledge taxpayer financial support to real estate businesses via these loan vehicles.