if banks can call their debts equity, why can't ordinary citizens ...

Question by Luigi Fontaine: if banks can call their debts equity, why can?t ordinary citizens use their own equity to finance their homes?

Best answer:

Answer by Kenny
Debt is not equity. Entirely different.

If the Banks have an ownership claim in a business, then it is equity. They have a subordinate claim to assets. If the bank has borrowed money and is repaying the loan with interest, that is debt. There is no ownership claim but the debt holder has senior rights to assets to secure the loan.

If the owners of the bank decide to release shares in the bank to raise capital, the people buying the shares get an ownership claim on the bank, but subordinate claim to the bank?s assets. If another bank lends the first bank capital, then the first bank owes a debt to the second bank. Again, the second bank has first rights to the first bank?s assets in case of default, but no ownership rights.

So no, you cannot use your equity (equity in what?) to finance a home.

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Source: http://askca1.spinelink.com/2011/07/13/if-banks-can-call-their-debts-equity-why-cant-ordinary-citizens-use-their-own-equity-to-finance-their-homes/

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