this came up a year ago when someone informed someone on a finance diary that consistent payment history guarantees a mortgage.  Following below is what I learned...

I called the vice president of our previous lending institution (we have been able to pay off our mortgage, thank God) to verify this point.  

He says that particularly in the case of home equity lines, there is a provision in documents (each lender’s documents are somewhat different) by which a lender may declare themselves undersecured.  Insecurity provision falls under default provisions - a simple sentence says "lender in good faith deems itself insecure" which can result from decline in real estate values in contrast with mortgage values.  This is the point at which a lender would consider foreclosure when property values have fallen beneath mortgage values.  He confirms that nearly all lenders’ documents bear a provision like this.

There is an adverse change clause, usually in a mortgage, which says when a material adverse change occurs in grantor’s financial condition or lender believes the prospect of payment or performance of the indebtedness is impaired, the lender may foreclose.  This means, for instance, the event of a declining real estate market in combination with losing your job - even if by some other means you keep paying on your mortgage.

Other default provisions include death of borrower whereby a surviving spouse could lose the mortgage.  Also there is failure to comply with any other term, obligation, covenant or condition contained in the mortgage, the note, or any of the related documents.

He cited this:  commencement of foreclosure or forfeiture proceedings whether by judicial proceeding, self-help (such as a creditor repossessing a vehicle without court order), repossession or any other method, by any creditor of grantor or by any governmental agency against any of the property (includes furniture, autos, etc.).  Which means, also, if the government gets involved (hmmm, like they ever would do that against certain citizens...).

His bank repossessed a vehicle where the payment was fully current on the loan.  The borrower had pledged that vehicle had pledged the vehicle as collateral, and the whereabouts of the title was in question.   So because of a competing claim, the bank repossessed the vehicle.

In the event that payments are made, he said, usually the bank will support the mortgage.  However should a significant portion of the grantor’s economy crumble - such as loss of a significant employment sector and hence grantor’s job - the bank is likely to take action regardless of payment history if property value has fallen below the mortgage value.