I would like to better understand how the buydown works in residential housing market.
A typical situation that comes to my mind is that a developer who wants to get rid of excess supply of homes in an ailing housing market. Because the developer wants to get rid of these inventories before the prices drop further, she has the incentive to pay some sort of lump sum to the lender effectively reducing the interest rate on a mortgage.
How does this help to get rid of the excess inventory? In other words, why would borrowers "better" or more easily qualify for the loan if the developer does the buydown?
Is there any winner or loser in the scenario? Does the commercial bank lender assume more risk in this case?
Any interest feature associated with the buydown?