Quote Originally Posted by BoganInParasite View Post
in some cases, all equity must be gone.
I'm not so sure of that. After learning their lessons from Fanny Mae and Freddie Mac, banks in Aus and NZ required 20% deposits PLUS income that will cover the repayments.
If a young couple bought a house last year on 20% deposit, and if prices dropped 20%, they still have a house that they can afford to live in and pay the mortgage. It's wrong to abandon the house because it has no equity. By the time their loan term is up, equity will have been restored.

Around 30 years ago, when interest rates in NZ were circa 20% (yes!!! twenty and at one point up to 23!!), the deposit demanded by banks was 5%. I bought a house with zero deposit because I convinced the finance company that the equity was in the fact that I was proposing to buy an empty section and a house "for sale for removal" to place on the section; the whole was greater than the sum of it's parts. A "handyman's dream" house, so to speak. Even after paying out my ex after our divorce, I have been mortgage-free for a while, have sold that house and upgraded, still debt-free.
My point...even if equity is lost or hidden, by hanging on (assuming intrest rates don't get beyond what you can afford), and one day you will own and be debt-free.