Re:Anxiety Strikes $8T Mortgage-Debt Market After SVB Collapse
by WJW on Thursday March 23, 2023 @05:17PM
(#35281417)
Owner financing rates may be lower than general interest rates, and can be when the seller is family of the buyer or is otherwise related. That will not generally be the case if owner financing becomes the norm though, why would anyone charge lower rates than general rates to some random stranger, especially if it is a borrower who is "less qualified"??? Let's not forget that the previous owner now has to rely on this "less qualified" borrower to honor their commitment for (potentially) several decades. Large financial institutions can amortize this risk over many loans and can afford to have entire departments to assess and manage the risk. Individuals would not be able to do so nearly as well.
If anything, the 2008 financial crisis should have taught us that lending more money to people than they can responsibly bear is not a wise idea, neither for the lenders but also not for the borrowers.
Owner financing is a very different instrument from a traditional mortgage. Most importantly, the terms are completely negotiable, meaning that buyers can obtain low interest owner financing even when general interest rates are high, especially when owners are desperate to sell. Owner finance instruments can also be obtained by less qualified borrowers, are not backed by government agencies, servicing costs are negligible, and many do not report to credit bureaus, which has significant implications to borrowers.