If you were in negative equity, you might choose to suck it up and pay.

Statistically however, borrowers are much more likely to default when they’re in negative equity, because quite obviously, there’s an incentive to declare bankruptcy.

If you owed a million dollars on a property that had been condemned and is only worth $50k, obviously you would declare bankruptcy. If the property was worth $400k you’d probably do the same. If the property was worth $800k you might do that, but you might choose to suck it up.

My point is, negative equity is an incentive to default on the loan.

Obviously, defaulting on mortgages is a thing. Obviously, people are much more likely to do so when they’re in negative equity.

This isn’t something people do as a sophisticated well planned financial strategy. In a context of economic upheaval, declining property losses, usually because of unemployment, which usually causes family breakdowns.