All they have to do is bundle these mortgages together with safer ones and sell the resulting bundle as a security. The market will accurately assess the risk of the combined product and set prices accordingly. Because of the way this spreads out risk and incentivizes smart, objective analysis of the products, this is guaranteed to work well.

There's a roughly 3.6% spread between the purchase price appreciation schedule and purchase credit schedule, no option to extend the lease past five years, and a two-year minimum for accumulating leasing fees. This points pretty strongly towards partnering with a "hard money" lender willing to put up balloon loans and happy to collect either the above-market-rate interest or the property in lieu of repayment. It's likely arbitraged so that 100% of the risk gets offloaded. The appreciation schedule on the purchase option pays for the excessive interest demanded by lenders happy to take possession of property in downturns.

Furthermore, Zerodown is structured so that it will never go through the foreclosure process. They own the property and lease it out, so the worst they'll need to do is an eviction.

Corporate jingle-mail? It's not like there's any real-world penalty for walking away, and everybody there still gets paid until their last check.

Same as any other startup failure, just with REO bargains on the back end.

Much higher interest rates presumably. I don't think there's any fundamental reason why you shouldn't be able to buy a house without a deposit. A deposit just shows you can be sensible with money, and therefore the loan is much lower risk for the bank.

But if a bank is willing to take on the high risk in return for very high interest rates there's no particular reason why it shouldn't be possible. It may end up being exploitative, like payday loans, but not necessarily.