Yeah, it's hard for me to imagine how lending can happen without something very stable to back it up.
It makes me think of mortgages - how if the value of a property dips below the outstanding loan, the bank can foreclose (which I think sucks, if you're up-to-date on payments). But would SALT have to implement a similar policy to avoid losing all its collateral in a crash?
I think it will be very tough to find that balance for both investors and individuals trying to take a loan. On one side if you want a loan will a person be willing to put up their BTC but only receive 20 or 30% of the value of it in US Dollars....... It might not be worth risking it for so little cash.
For the investors they are trying to loan on quicksand and could end up upside down in a matter of weeks. So Imagine this. Let's say they did give 50% LTV and then Bitcoin drops 70%. Well the borrower could just not make their payment and let the lender "foreclose" on their Bitcoin and the borrower would have the USD to just go and buy another Bitcoin at a lower price.
From what I understand SALT is mainly a 3rd party bringing the borrowers and lenders together so they aren't really taking on the risk. It is the accredited investors who are taking on the risk. And if you think about it most accredited investors are older and would likely not want to have something so volatile be the collateral.
I'm sure they must have some safeguards in place for this but what's to stop people from taking loans and just walking away with a 70% profit? It happens on Lending Club and Prosper I see the same thing happening here. Maybe once you burn the community your out but your still up 70%.
That is what I figure. A reputation system like on eBay or Amazon but if you cut and run you just burnt that situation out for the short term gain!
Is that really a true a bank can foreclose on you even if your up on payments but property value falls? That's crazy
Someone can correct me, but I'm pretty sure it's true. Mostly because it stuck in my head because it is so crazy. Luckily it hasn't happened to me though, so I can't tell you from first-hand experience. :)
I guess it runs parallel to the idea of any market crash: if value is dropping, they want to sell the house at current price before it gets much lower - to cut losses.
Yeah I guess none of us probably actually read all our mortgage documents but if someone read that it would make you not want to sign. I wonder how the situation would be handled as well. It's not as if they can force you to liquidate your house and take a huge loss, assuming your still paying for it you could have lived there forever and never had to take a loss as at the end of the day for most homeowners a home is a residence moreso than an investment. That's relaly messed up
Did a quick search. Maybe I'm wrong after all. It's called an upside-down mortgage when you owe more than it's worth. And that definitely causes problems. But nothing's coming up where the bank can automatically foreclose on you.
Okay makes me feel better about my mortgage lol. Yeah I suppose as long as you are able to make the payments it doesn't really matter if your upside down. I have one rental property and never really understood how landlords properly managing their funds get into such deep trouble. I think what happens is its flippers because at the end of the day if my mortage is $700 and my place rents for $1400 it doesn't really matter what home prices do.