You are right, nice example.  I would like to add that your example implies a forced sale or foreclosure, with the bank suing to make up the differential.  All fine.  The deeply underwater owners can then go bankrupt, and probably would, rather than slaving for years to pay the bank.  The underwater percentage was a lot larger in many US cases, killing all hope of hanging on.  BUT the major point is that owners can walk away BEFORE the bank even forecloses/fails to renew. That is how the US fell so fast - voluntary default, mail in the keys, walk away.  Then wait a year and buy back the same house for 40% less!  Nice!  In the Canadian case you probably have to declare bankruptcy - which will happen!  When you can get out from under $400k of after-tax debt, do it!  What cares about the supposed "stigma" of bankruptcy??  In fact, the more recently the buyers purchased, and the lower their DP , the less equity they have, and the more incentive they will have to walk.  No loss! I'm gone!