So basically the lending institution buys the house, lets the sub-600 FICO live in the house rent-free for 1 year, and then retakes possession of the house in a potentially crashing market when the tenant leaves the keys on the table. Is there at least a security deposit the institution can claim if the tenant wrecks the place?
In an appreciating market, these suicide loans make sense on the MBS market, as the banks/investors can sell and claim the appreciation once the previous debtor is bled dry (and another sap is found.) In a depreciating market, though, they make no sense at all.
