1. The property price appreciates – the buyer is happy and enjoys the new wealth. He may decide to sell and monetize his gains.
2. The property price depreciates – not a concern, if he wants to live there and has sufficent cash flow to finance it. If it depreciates dramatically, say 50% in a year or two, he can structure the transaction such that he can walk away at a small loss, if he feels like.
3. His cash flow improves significantly – he can pay back the loan and live happily – if he wants.
4. His cash flow falls dramatically – he can sell the house, if the value is profitable or send the keys to the lender, as a last resort – with a small loss – if structured properly.
In all cases, the borrower stands to win big or lose small. The main thing is to shield his net worth from the loan with robust legal firewalls.
Now if you ask me if the lender is gambling – I have a short answer: Yes {Ask Bear/Merrill/Citi for confirmation!}
