Comment by AnthonyMouse

> The problem is the bank didn’t leave a buffer to meet their requirements

They did though. It was a $20M building and they only loaned out $16M, providing a $4M buffer. It isn't possible to require an amount that the value of the building could never fall below under any circumstances because that would require the loan amount to be zero. It's always possible for the value of the property to crash, e.g. it becomes contaminated with toxic waste and the remediation costs more than the property value, or the area's major employer shuts down and the area becomes a ghost town.

Meanwhile increasing the size of the buffer has costs that can exceed the value of a larger buffer, i.e. fewer people can afford a mortgage, which is both economically bad and not in the interests of the bank who wants to make more loans rather than fewer.

> However, another way to look at this from a banks point of view is while they may loan 80%, they might have been happy to loan 100% but for regulations.

The reason banks require a down payment instead of loaning out 100% of the value of the property is definitely because the banks want the buffer to not be zero.

> And for the bank, if the loan payments are made there is no problem.

But that's the issue. If they prevent the landlord from lowering rents to increase occupancy then they may not be able to make the payments anymore, and then the bank is screwed.