Overcollateralized Lending: Questions on Liquidations
Mortgages are a form of overcollateralized lending. Learn more about the legal implications of liquidations and how banks protect themselves against the free option.
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Hasu⚡️🤖
strategy lead https://t.co/74GZIbbSl9 strategic advisor @LidoFinance research collab @paradigm
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some say overcollateralized lending doesn’t really happen in real life, but then mortgages are pretty popular.
— Hasu⚡️🤖 (@hasufl) June 17, 2023
you put up 5% collateral, bank lends you 95% to buy a house, but the bank owns the house until you paid it off.
for me this raises some questions on liquidations -
1) what happens if the owner’s equity goes negative?
— Hasu⚡️🤖 (@hasufl) June 17, 2023 -
2) can borrowers legally walk away from the loan, as long as they are happy to forfeit the house?
— Hasu⚡️🤖 (@hasufl) June 17, 2023 -
3) (if yes, how does the bank protect itself against the free option?)
— Hasu⚡️🤖 (@hasufl) June 17, 2023 -
4) when does the bank typically liquidate the loan? only when you stop repaying, or do they allow the house to go to zero?
— Hasu⚡️🤖 (@hasufl) June 17, 2023 -
5) how common are liquidations?
— Hasu⚡️🤖 (@hasufl) June 17, 2023 -
6) do banks typically hold the house on their balance sheet until maturation, or would repackaging + selling be more common?
— Hasu⚡️🤖 (@hasufl) June 17, 2023