Consider a situation where a loan officer examines the degree of collateralizability of a real estate.

For example, one could compare:

  1. Sturdiness: wood v. brick.
  2. Flood/Tornado Plain: more vulnerable to flood/tornado v. less so.

My Question (a): Would you say a loan officer views the former choice in (2) as an element for less collateralizable real estate? In my previous question, the home insurance was discussed. Lenders would not extend a mortgage to a home buyer unless a proper home insurance is purchased. Hence, the bank hedges fully against such natural disasters, so would you consider homes in the Midwest as opposed to homes in Maine less collateralizable?

My Question (b): Now consider (1), holding all other factors the same for two homes: one is wood and brick. Would this factor into a loan officer's evaluation of the home to be less collateralizable? In other words, does the structural durability factor into the collateral calculation?

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    Are these actual problems you're running into, or wild hypotheticals? – RonJohn Jul 22 '19 at 15:15
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    You never know what the hazard is going to be. Once we declined to write a policy for one fella's straw house, but we wrote for his friends, who had wood and brick houses. Then there was a problem with local wildlife of all things, and unfortunately we had to pay a claim. Going forward we will only underwrite brick houses in that area. – Harper - Reinstate Monica Jul 22 '19 at 15:47
  • Your ideas about housing and mortgages are all goofed up. Where did you get your information? – Pete B. Jul 22 '19 at 16:36
  • @RonJohn these are both theoretical + reality thought-exercises..! – Frank Swanton Jul 23 '19 at 12:59

In the US, these are to my knowledge not a huge concern from a "collateralizable" standpoint. They will be factors in the market value of the home, certainly, and the LTV (loan-to-value) ratio is crucial. In other words, a $200k house made of brick is worth the same as a $200k house made of sticks.

They will also be a factor in how much you pay for insurance, as your other questions covers. That is the main way to protect the bank's interest, which is why lenders will require you to have adequate insurance coverage on a mortgaged home. Their only concern is getting their money back, which will be either by your payments (where credit worthiness is the main factor) or by liquidation (refinance or compensation through insurance for a destroyed/damaged home).

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Brick homes aren't built in the US anymore. It's all stick frame with a brick facade. (I'm sure there's the occasional Rich Eccentric who builds solid brick, but that doesn't count.)

And flood insurance is what morphs a bunch of sticks in a flood plain from impending disaster into a house they will write a mortgage for.

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    There are some brick built homes at least in some states. As well as concrete structure homes. Although the wooden design is most common it is by no means the only thing around, particularly in areas with regular extreme weather. – Vality Jul 22 '19 at 15:58

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