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> For home loans, the collateral is the house, which is strange because the house doesn't truly belong to the borrower until the loan is paid off.

Your thinking is circular - the house doesn't truly belong to the borrower exactly because it's the collateral of the loan. Nothing strange about it.

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It is the self-collateralization that is circular, not my thinking! Not all credit markets work like this; instead expecting as collateral something you actually own, and making margin calls when the value of that collateral falls.

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