Banks lend money for real estate more easily than other purchased on the basis that the value of the asset securing the loan is greater than the money lent. With a downturn in property values, individuals can end up holding negative equity in their property.
This is a problem. A big problem.
Our current system punishes individual lenders, holding them accountable for the whole amount.
But what if the banks were held accountable?
What if a home owner could settle the debt by simply handing the title back to the mortgagee? Would that more fairly distribute the risk according to the relative capacity of the parties to foresee such risks? Doubtless it would lead to lower property prices – though who would that disadvantage other than opportunistic property developers riding on the back of a pricing bubble?
Here in Shanghai, people talk about becoming a slave to their apartment, reflecting the overinflated property prices here compared with income… perhaps it is time to liberate our slaves.