Negative equity is basically the name of a phenomenon. This is found to be observed the values of an asset change during different situations. For example, at the time of securing a loan, this value is less while the outstanding balance in the amount of loan is higher than its value.
Negative equity in United States
Usually the assets which are present along with the negative equity in United States are referred to as underwater. Usually the kinds of assets which face the problem of negative equity are the real estate assets whose loans are often declared I the form of mortgages. In the same way as these assets with negative equity are referred to as the underwater, the borrowers having the negative equity on their shoulders are said to be upside down. This situation is really awkward and can make the person upside down. Sometimes any negative equity is also expressed on the balance sheets of people.
Causes of negative equity
There may be more than one reason for the arousal of negative equity for many people and different assets. For example in a housing market which is occupied by the owner himself, if there is a fall in the market value, then it may becomes the major cause of negative equity. Usually this occurs when the owner gets the home equity loans over the second mortgage. This will cause the value of combined loans to increase and exceed the original value of the home. In this way the negative equity arises.
Negative equity and possession of a property
There are many cases when the borrower strives to get the possession of the property and tries to sale it. However if the property is sold to the lender, it will not be ale to raise much cash for the borrower. In this way the borrower cannot even pay off the outstanding amount and will be in debt even after selling the property. Therefore there are many cases in many states like in California when the lenders are provided with the option of choosing the repossession of property in case if the borrower cannot pay off the debt.
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Most WantedFinancial Terms
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- Debt-to-Equity Ratio
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- Return On Capital Employed (ROCE)
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