The original comment that I answered is technically false if there exist a single mortgage that isn't a gamble.
Now, if only a single such mortgage existed you’d still have a point, but the fact is millions of loans are given and paid back every year without any complications at all: there is plenty of income and plenty of security for very many loans.
IIRC, what Lehman did was to deliberately trade in bundles of sub prime loans.
Nope, just smaller apples and bigger apples. There’s no such thing as a mortgage that isn’t a gamble. At best you can say there are mortgages which are safer (even much much safer) than others.
“There’s no risk here” is what causes financial crises and bank runs, which is the larger point.
The real estate market is just that - a market. Your house can absolutely become worth less than the amount you borrowed over the period of your borrowing.
Just because the odds are currently in their favour, doesn't make it not a gamble.
If you think that isn’t a gamble, learning some history is in order. Real estate markets can go down, often in highly correlated events – for example, in San Diego in the 90s prices fell and stayed down for years because Cold War defense contractors laid off a ton of people & nobody needed a nice house near a closed plant. The market in San Diego did recover eventually but a bank would have to be prepared to maintain that property & pay taxes for years before selling it at a profit.
During the subprime crisis, the entire US market went down by 30% and in some places sales basically halted for months. Many thousands of people lost homes, and almost all of them had equity on paper before the bubble popped.
Individual actions also matter. Maybe the reason you can’t pay your bank is because you developed a mental illness or drug problem, and they now need to replace a large amount of damage before anyone will pay what you paid.
Those aren’t constant high risks but they are why smart bankers calculate the odds and plan for what they’ll do when something inevitably goes wrong.
You clearly weren’t in the real estate market in 2008, I suggest you google “real estate short sale”.
If you loan someone money to buy a house, you are betting that either they will be able to pay or that the market will appreciate enough that all of the costs of foreclosure and resale will be less than the sale price of the house.
Both things being false at the same time in 2008 ruined Lehman brothers because they had the same thought you’re expressing here. Their gamble didn’t pay off.
