This is a problem from an investment thesis perspective, though, because you're betting on appreciation of distressed properties rather than on appreciation of non-distressed properties, and it is very not obvious that that is the winning thesis.
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(Not obvious to me whether the user gets pricing at the new mark or not; could see arguments for either or both.)
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"What if users default on the loans?" An interesting fact you'll learn if you enjoy reading bank annual reports: First Republic, which is effectively a community bank in Silicon Valley/etc, suffered a total of zero mortgages defaulting during the dot com bust. *Zero.*
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(They're not loans, etc etc. Just trying to show that the most obvious objection to this is a lot less powerful than people probably think it is, as is frequently true of most obvious objections.)
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Another interesting wrinkle in the model, from the user perspective: when you pick out a house, you're making a cash offer (and therefore can close *extremely* quickly) rather than going through a mortgage approval dance. Your mortgage approval happens ~5 years later.
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This model, OpenDoor, and the like arming lots of buyers with cash offers will have interesting downstream impacts on many, many assumptions about residential real estate purchase, because "financing takes about a month to arrange" is all but a law of nature there.
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End of conversation
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On a 10% decline someone at the 5 year max on Plan A would still have a 5% incentive, sure, but 1. A 10% fall is mild compared to 40% last time. 2. The folks who are only 1-3 years in (or on the B plan at any point) would face incentives to walk even w/ a 10% decline.
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Huh? The 3%/year ownership credit and the 3.3% minimum annual increase cancel out, so it's: 1) Pay 10% above market for "your" house, and be $100K underwater, or 2) Pay $900K for an equivalent house. Realtor fees/Closing costs/Moving ain't cheap, but also not $100K/11%
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