Is It Wrong To Walk Away From A Mortgage Deep Underwater?

For years, owning a home was "the American dream" -- until the recent housing crisis turned owning a home into a nightmare for millions.

New numbers out just this morning paint a dark picture of the nation's foreclosure crisis.

Mortgage defaults are up 15 percent since last year and an astonishing one in 409 homes received a foreclosure notice this January. That's 315,716 homes. And at least one in five homeowners owe more on their homes than their homes are worth.

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In some states the figures are particularly staggering. In Nevada alone more than 40% of homes are "underwater," meaning homeowners owe more on their homes than what their homes are worth.

Many homeowners on the edge are wondering whether they should just walk away from their mortgages and get off the "hamster wheel" of making costly payments on a home deep underwater.

"There's a lot of justified fear about walking away from your mortgage. A lot of this fear is cultivated by banks...and the government," said Brent White, an associate professor of law at the University of Arizona, who recently published a paper, titled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."

White emphasized he is not in the business of advising homeowners. Rather, his paper is about making the point that lenders and other businesses are not saddled with the same moral constraints as individual homeowners.

"Sure, you'll take a credit hit [if you walk away from your mortgage,]" White said, "but you can recover from that."

"The cost is a lot less than the hundreds of thousands [of dollars] people can save from walking away from their mortgage," he said.

White added only about 2 percent of Americans with homes underwater are currently walking away from their mortgages, but he said more people probably should, financially-speaking.

"Heather B.," a single mom who asked that her last name not be used, is among those currently taking steps to strategically default on their mortgage.

"I was working two jobs," she said. "I liquidated a 401K. I spent all my savings. ... I reached out for every source of income that I could possibly get my hands on to stay in this home. And I was hoping that my lender would work with me."

But when the bank refused to modify the loan on her home in the metropolitan D.C. area -- currently more than $200,000 underwater -- she turned to www.youwalkaway.com, a Web site that claims to have helped thousands walk away from their mortgages.

"I just don't see myself being able to recover here. It's like throwing good money at bad money," Heather B. said.

Banks and corporations have been walking away from mortgages for years. If an investment in a property isn't working out, they routinely walk away.

Even the Mortgage Bankers Association, long a critic of individual homeowners walking away from their mortgages, announced last week it was defaulting on its headquarters, a Washington, D.C., building it opted to sell in a short sale when it fell underwater.

However, Dave Ramsey, host of a television show about living a debt-free life, advises against walking away. He suggests hanging on until the market turns and, if you just can't, selling your home for less than it's worth, rather than walking away to preserve your credit.

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