Or you lose your job, and your ability to pay the mortgage, and so you lose your house and your deposit...
If you're underwater because you've used your house as an ATM you're on your own but responsible parties shouldn't be losing their deposit.
This all changes if there's a huge downward swing in home prices. It's unclear if there's downward pressure whether home prices would significantly fall as opposed to flatten out . The 2008 collapse caused about 5 years of lowered home prices, bottoming out around 2010. But a lot of that was also driven by poor lending practices.
A possibly more realistic scenario is a magnitude 9 quake along the Hayward fault. Something that would destroy (not merely damage) a significant chunk of infrastructure resulting in the dissolution of hundreds, if not thousands of businesses and the concomitant unemployment that would ensue.
However even in that case the amount of resources available to restart are really unprecedented relative to the rest of the country.
Obviously in many cases during the 2008 crisis the homes were underwater (valued at less than the loan amount), in that case then yes, you end up without a house or any equity since it's valued at less than you owe.
In the hypothetical where you lose your job and can no longer afford the mortgage - presuming you went an extended period without paying - the bank will eventually force a sale of the property to recover the loan amount.
If you have positive equity in a home then you'll have some money leftover after the proceeds of the sale are used to pay off the remaining balance to the bank.
Let's say you save 200k, and buy a house for 1 million. You take out a loan from the bank for 800k.
Opps market correction. You lose your job, and a lot of your friends do too. Your house is now worth 600k. You either sell for 600k and pay the bank another 200k for a total loss of 400k, or you go the bankruptcy route and "only" lose 200k and your credit for 7 years.
Weather or not you had 200k positive equity for 6 months has nothing to do with it. Positive equity is great when something bad happens to YOU and YOU need to get out, but if it happens to everyone - that positive equity very quickly flips to negative equity.