Negative Equity


Also found in: Dictionary, Thesaurus, Encyclopedia, Wikipedia.

Negative Equity

A situation in which one owes more on a loan used to pay for an asset than that asset's current market value. For example, if one borrows $100,000 to buy a house and, for whatever reason, the value immediately drops to $60,000, the homeowner is said to have negative equity. Negative equity is most common after the burst of an asset bubble. One with negative equity is said to be upside down in the loan.
References in periodicals archive ?
Equity extraction increased the risk of a negative equity position, says the report.
The combination of a falling housing market and a large number of homeowners holding little or no equity at mortgage origination created a perfect storm for generating negative equity. Note that for a mortgage with an apparently safe origination LTV ratio of around 80, a 20 percent decline in house value--not uncommon in many metro areas in 2007--could potentially erase essentially all of the homeowner's equity.
His report said around 13% - 900,000 - of those who took out mortgages between the second quarter of 2005 and the end of 2008 had negative equity. Those who took out mortgages in the second and third quarters of 2007, at the peak of house prices, were most likely to be affected.
Of course, the problem of negative equity in housing is not just an American affliction.
The survey, by marketing experts CACI, found that one in eight of the 1.2 million people who have taken out mortgages since the start of last year are in negative equity.
If the numbers I have been describing--a ten per cent fall over a year--are to materialise, all of those families, by definition, will find themselves in negative equity within a year.'
This is known as being "upside down," or having negative equity, on a car loan.
The number of residential home loans in negative equity, where the outstanding loan amount exceeds the current market value of the mortgaged property, rose to 105,697 with a value of HK$165 billion (about $21.15 billion) at the end of June.
Financial Secretary Antony Leung remained hesitant Tuesday to provide financial help to negative equity homeowners, arguing the bailout will cause to raise ''moral hazard'' and will be expensive.
With house prices showing signs of recovering after the collapse of the late Eighties and early Nineties, there should be less risk of hitting negative equity problems in the near future anyway.
It comes into action if the owner of a negative equity home wants to move between five and 10 years after the mortgage is taken out.
This disparity between fair market value and the payoff amount would continue throughout the life of the loan; the partnership would always have negative equity because the payoff amount would always exceed the fair market value of the property.