Correct, but once underwater, an default renders the loan worthless.
Underwater+Default --Usually--> Worthless 2nd lien
>> Just in the obvious case, if the borrower continues to pay, the lien is worth the future value of its cashflows. Not everyone who goes underwater on a loan simply stops paying.
Totally agree, but not everyone has a choice (divorce, lost job, floating rate rises, wages fall, etc.)
>> In the US, even loans in default tend to have some value, because speculators are willing to buy the debt and attempt collection.
Yes, for recourse states, not for non-recourse states because the later only offers the liquidation of the home as collateral and nothing else. https://www.quickenloans.com/learn/the-difference-between-re...
