Debt deflation
Debt deflation
Debt deflation occurs when the collateral supporting a loan declines in value. This scenario greatly increases risk for the lender and borrower. Consider a mortgage loan that financed 100 percent of the purchase amount: If the home declines in value, the lender's collateral will be worth less than the amount the borrower owes. If the borrower needs to sell the property, he would have to pay cash out of his pocket to cover the difference between the selling price of the home and the amount owed on the mortgage.
6.05
