I don't know where these numbers came from. There is NO 700k house in my imaginary scenario. In fact the entire cost to BUILD this house is 100k, so the only way for damage to reach 100k would be for the house to literally burn down - which is covered by insurance. The most you would expect "junking up" a house that costs 100k would probably be about 10 - 20k of damage - depending on the finishes. This whole thread spawned from this comment makes no sense. And again, since this world has no renting, these people want to TAKE CARE of their house, not ruin it. Even if these people decide to "junk it up" on purpose because they are about to default - again burning causes insurance payout to the bank and other than that it's just up to 20k. The other goal here though is that because it's 100k there's a much higher chance that this person can work a normal / non coding job and make ends meet and live in this 100k house just fine with little chance of defaulting.

Ehm, I'm not sure how that makes any sense at all. Someone who can't be trusted to repay 100k can certainly be trusted to inhabit a (insured) house worth 700k without setting it on fire. Landlords do exactly this all the time. Also, it's not about keeping the money safe, but about generating a return.

Well if we're talking about loaning 100k for the house, you can always execute your lien holder privileges to take back the house if they don't pay. Mortgage insurance providers a like service to the mortgage provider to minimize losses.

I'd much rather be in position backing mortgage on 100k house, backed by mortgage insurance, than risking someone I don't trust with that same 100k having full custody of my house worth 700k.

Your premise still doesn't make any sense. There are far more people who can be trusted not to cause massive property damage to their own homes (which they will then be liable for) than can be trusted to proactively work to repay a mortgage. It's a lot easier not to destroy value than to create it.

Mind you, many people do cause significant damage to the spaces they rent. This being among the most frequent complaints by landlords.

You have to _proactively_ work to pay rent. Someone financially struggling does not have an easier time paying rent on a 700k home than mortgage on a 100k home, that doesn't even make sense to make an argument on the proactive payment difference. Merely not paying rent is a damage to a landlord who still has to maintain a property that the unpaying renter enjoys, so we can't argue that merely not damaging the home avoids damaging the landlord.

At equal level of negligence risk (which for most people, yes, is quite low), the monetary expected loss through negligence or crime on 700k home should be greater than that on 100k home, all else equal (same person, location, etc).

And all of this fails to account for the greater personal incentive one has to pay for their own house and take care of their own house than for someone else's they're just renting.

Just because the tenant doesn't pay rent, it doesn't meant he landlord doesn't have to pay his mortgage. Mortgages aren't given to people who don't have the capital reserves to withstand loss of rental income. The main differentiating factor between a landlord and a tenant is risk of default. If you are appraised to have a risk low enough for a bank to tolerate, you get a mortgage. If not, you don't. What's wrong with this process?

If you don't pay rent you are (supposed to be) evicted in short order and replaced with someone who does pay rent, specifically to avoid damaging the landlord as you describe.

> the monetary expected loss through negligence or crime on 700k home should be greater than that on 100k home

But that's not what we're talking about. The risk of significant damage through negligence by a tenant on a 700k home is much lower than the risk that same tenant would default on a 100k mortgage. That's the whole point.

>Just because the tenant doesn't pay rent, it doesn't meant he landlord doesn't have to pay his mortgage

Precisely! Not paying rent is a damage to the landlord. You're destroying value. So we can't say you aren't damaging anything if you just don't damage the house.

>The main differentiating factor between a landlord and a tenant is risk of default. If you are appraised to have a risk low enough for a bank to tolerate, you get a mortgage. If not, you don't. What's wrong with this process?

Nothing. I'm pointing out how idiotic it is for someone to be trusted with a 700k house who can't be trusted with 100k mortgage.

>But that's not what we're talking about. The risk of significant damage through negligence by a tenant on a 700k home is much lower than the risk that same tenant would default on a 100k mortgage. That's the whole point.

That's not the entire calculus. The risk to the landlord is that the tenant won't pay or that the tenant will destroy the house. The difference is a land owner has even less incentive to destroy their own house and even less incentive to fail to pay up his/her own mortgage. The risk to the bank is that both you won't pay AND after they seize the property they can't recoup all the damages of non-repayment / lost interest and the principle. This is even more magnified when comparing a 700k rental property to a 100k mortgage. You can't just compare risk of damage to rental house to risk of default.

Having collateral is a much more enviable position IMO and the fact that someone who owns a house has a real interest in protecting it just doubles down on this tipping of the balance to preferring to be a mortgage provider over a landlord in dealing with potential tenant/mortgagee of equal risk.

>The risk of significant damage through negligence by a tenant on a 700k home is much lower than the risk that same tenant would default on a 100k mortgage. That's the whole point.

How much damage does the bank really have on someone who holds mortgage on 100k house, defaults, and then the bank takes the house and flips it for now even more money? It can't be that much more than the landlord who rather than having something to seize just outright loses the rent on a 700k house and now can't pay their own mortgage. I'd much rather be in the bank's position here.

If you can make rent on a 700k house, you can make mortgage on a 100k home. If you don't pay, the home will be taken away (and probably sold for more than you bought it for in this economy), while if you don't pay rent the landlord is out mortgage payments with quite possibly no asset he can seize from you.

This all goes back to my point. "Someone who can't be trusted with 100k [sic: mortgage] shouldn't be entrusted to inhabit a house worth 700k."

> I'm pointing out how idiotic it is for someone to be trusted with a 700k house who can't be trusted with 100k mortgage.

But this happens all the time when people rent anything. You can rent a Lambo, doesn't mean you can afford to buy one. Trusting someone not to destroy something while the use it isn't the same as trusting them to pay you the full value of it upfront.

Otherwise it seems like you're suggesting there's a missed opportunity to grant mortgages to financially unstable people. Isn't that what caused the 2008 financial crisis?

> Someone who can't be trusted with 100k [sic: mortgage] shouldn't be entrusted to inhabit a house worth 700k.

But they are and it works just fine.

I'd argue the biggest cause of the MBS was lack of understanding of risk on the part of those buying the securities, not the risk itself. Markets can tolerate risk when it is priced in appropriately.

>Trusting someone not to destroy something while the use it isn't the same as trusting them to pay you the full value of it upfront.

You don't trust them to pay you. If you did, the house wouldn't have a lien on it. You may mostly kind of trust they won't burn it down or destroy it, so you might trust you'll say get 80% of your money back and thus require a 20% down payment or something.

>But they are and it works just fine.

If the market can find a way to price in risk for someone renting a 700k house which entails them usually paying at least interest on the value of house + property tax + maintenance (this is all indirect payment, but basically what a landlord needs to charge to at least break even), the market can find a way to price in risk for that same person buying a 100k house.

> Mortgage insurance providers a like service to the mortgage provider to minimize losses

If real estate becomes a non-cash producing “asset,” mortgage insurance would become far pricier.

While we're playing the what if game, if any and every untrustworthy character were given custody of 700k house, home owner insurance would also become far pricier.