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Learning To Walk: Fear, Shame And Your Underwater Mortgage

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WASHINGTON -- Nearly 1 in every 4 U.S. homeowners with mortgages owe more on their home than it's worth. Once a month, those 10.8 million are faced with a question that cuts to the core of the American Dream and offers a confusing collision between a deep-seated sense of personal obligation and a cold, simple business calculation: Should I pay my mortgage?

For decades, there was only one answer for most people: Of course I should keep paying, it's the right thing to do. Besides, the argument went, a home is a great investment. Today, in the wake of the most seismic housing collapse in the nation's history, that logic has increasingly been challenged by homeowners despondent about their lack of options.

Although researchers find that some underwater borrowers who could continue paying their mortgages strategically default anyway, the vast majority continue to pay. Many homeowners, out of a combined sense of fear, shame, courage and morality, resist making what is otherwise a logical financial decision.

Walking away from a home, however, is more than the sum of a few business decisions. For many homeowners, it's either an act of civic defiance against a system they no longer buy into or the end result of being shuffled around by institutions that don't help them solve their financial problems.

While walking away is a frightening and dangerous step into the unknown, millions have beaten the path in the past few years. To find out what it's like to walk away, The Huffington Post asked readers who were considering making the move, or who had already done so, to write in and share their stories. That was in January 2010. A year later, we followed up with them to see how they reflected on the experience.

We initially heard from 58 people from all over the country who fit the criteria. Ten of them have become unreachable over the past year, but the remaining 48 were eager to share their stories. A year later, only eight of them are still paying their mortgage. Some requested anonymity because of the shame associated with foreclosure; others requested it because they don't want to draw retribution from the banks. But there were those who were happy to share their tales on the record.

Almost universally, the homeowners we spoke with took personal responsibility for their situations, declining to blame the banks or politicians. Yet nearly all of them faced similar struggles in their attempts to work with their banks: lost paperwork and little interest in finding a financial compromise.

The hostility people felt from their banks made the decision to walk away easier for many, and some now even revel in it, celebrating a break from a system they see as rigged against them. "We get daily calls from creditors and banks that threaten this and that, and I just laugh knowing I am helping to bring down the system that has brought us all down and continues to reap giant profits at the expense of the little guy," said one. Others are still haunted with shame by the decision. Most said they felt a mix of both.

Many of the homeowners said they felt alone and powerless in their interactions with the banks and were curious to hear what other people in similar situations had to say. "There should be support groups for people who have to deal with these banks," said Richmond Burton, 50, a soon-to-be-former resident of Long Island's East Hampton. "It can drive you crazy. I'm very good at dealing with pressure, and they made it feel like you're at their mercy."

Following Burton's suggestion, HuffPost contacted Meetup.com and set up the infrastructure for underwater homeowners to do just that. This coming Tuesday, homeowners across the country can use Meetup's tool to organize small gatherings of homeowners who have walked away or who have considered doing it. Often, the best advice comes from a neighbor.

Burton's effort to get out from under his home became a second job, he said. "I never would have thought that the American Dream was to not own a home, but that's what mine became. I'm not ever going to take another mortgage. If I can avoid it, I'm not ever going to borrow money again," said Burton.

After years of failing to get approval for a "short sale" of his home, or even a decent mortgage modification, Burton said he stopped paying in August 2009 to help himself financially and to get his bank's attention. (A short sale occurs when lenders accept a sum less than the outstanding value than a mortgage loan, in lieu of forcing a borrower into foreclosure.)

He contacted HuffPost several months later and said he was still trying to get a short sale approved or persuade the bank to take the house in exchange for simply letting him walk away. The bank was refusing.

When we reconnected a year later, he said he had just signed documents that would let him walk away without a penalty, but he was forfeiting his $120,000 down payment. What did it feel like to walk away from that much money?

"It feels great," Burton said without hesitation. "I'm starting again. I've still got my talent, I've got my intelligence. I've got my health. At least I'm free of the enormous amount of stress that I had and the frustration of doing the best I could and it wasn't good enough. It wasn't working. Ultimately, I made a decision that my physical and mental health was more valuable than this house and my investment in it."

Burton went more than a year without paying his mortgage before persuading the bank to accept a short sale. "The mortgage company was not wiling to work with me. The businesses that we have created to serve us are enslaving us. They're not listening to us, they don't even pretend to care about us. Really, our only option is to do what I'm doing, which is to fire them all. I'm doing everything I can to remove them from my life," he said.

Lenders and servicers say such decisions will destroy borrowers' credit record and render them non-entities in the U.S. economy. Burton said that when he bought his Long Island home in 2000, his credit score had been somewhere in the 600s, an average figure. He allowed HuffPost to run his credit score through Equifax, one of three major credit-monitoring bureaus. As of Tuesday, after his ordeal of three years, his score is 614 -- below average, but not savaged. A few months ago, he had no trouble buying an iPhone. He ignores the many credit card solicitations that come his way.

The purpose of HuffPost's investigation was not to determine who or what was to blame for the predicament that the homeowners found themselves in or whether they are deserving of sympathy -- twin concerns that dominate the foreclosure discussion and will no doubt continue with ferocity in the comment section below this story.

Our question was more direct: What are the costs and benefits of walking away from an underwater mortgage -- not for the banks or the neighborhood or for society as a whole, but for the real people making the decision?

MORAL STRUGGLE

When Ernie Soto first wrote HuffPost, his mechanic business was falling apart and he was behind on his mortgage. Efforts to modify his loan had gone nowhere and he was considering filing for bankruptcy, walking away and buying a mobile trailer for his family to live in. "We laugh about it now, but we went through hell and back and back to hell," he said a year later, after filing for bankruptcy and telling the bank it could have the house.

Rock bottom came when he drove to the local vet to have his dog put to sleep. The repo man was in the parking lot. "I can't leave until I take your truck," he told Soto, 47.

"It was just another low moment in our lives," Soto said.

Soto drained his savings paying the mortgage so he could keep his credit score high and maintain hope that a loan would come through for his small business. But it never did. Shortly after writing to HuffPost at the beginning of 2010, he and his family walked away. "We'd had enough. We moved to a trailer park, a mobile home. We bought my dad's RV, figured we've gotta live somewhere."

Technically, Soto still owns his home and he routinely finds gigantic bills in his mail. At this point, he says, he can only chuckle darkly at the letters. The bank doesn't seem to understand that he has walked away, that he's done with them. Had he realized it would take his bank so long to foreclose, he said, he could have stayed in his house for free, but he was afraid that his bank would move faster than the guy who repossessed his truck. And didn't want to put his family through the trauma of an eviction.

"I was in unfamiliar territory. I don't lose houses every so often," he said. "I was thinking it'd be like the car, they'd come throw me out in three months."

Soto, a conservative Republican, said he has come to terms with his choice. "It was a tough decision. We thought about it and thought about it. I want to do the honorable thing, but wait a minute here -- I didn't get respect from the mortgage companies when I was asking for help. I didn't get respect from the banks when I was asking for help. Now here we are, we bailed everybody out," he said. "Am I just supposed to be the good Samaritan and just stay there? I asked the mortgage company, 'What's gonna keep me from giving you the keys?'"

Banks are responding to that question by using their power in Washington -- influence purchased with the checks people send to their banks each month -- to make it financially tougher to liberate oneself from an underwater mortgage, just as millions are on the brink of making their break.

'THERE IS SUCH A THING IN THE BIBLE'

Shelley Kluz said she saw a house in her neighborhood just like her own selling for $90,000. "It made me sick to my stomach, because we were already house-poor," she said of the place she and her husband paid $325,000 for in 2004. Her husband, she said, wanted to cling to the house, but she wanted out, with three kids in a 960-square-foot home in Vacaville, Calif.

"It was a big moral decision for us. We talked to our pastor, talked to our parents and had a really hard time coming to grips with the idea that we might not pay our mortgage, because we were always the people who paid their bills," she said. The pastor said that if making the payments was harming the family, it was okay to walk away. "There is such a thing in the Bible as debt forgiveness," she said. "We didn't want to get in bad with God, doing something morally He thinks is awful."

In July 2009, on the informal advice of a bank representative, the Kluzes stopped paying their mortgage to encourage their bank to approve a short sale. The bank initially accepted a short sale offer, but the couple was told that investors had later rejected it. The bank suggested Shelley Kluz apply for a modification, apparently unaware she'd been trying for the past year. She did so anyway and was rejected. The family was still in the house when she wrote to HuffPost in early 2010.

"We are in a weird limbo state of waiting. So, long story short, we are walking away. We are so fed up with this whole process," she wrote at the time.

Six months later, she and her family moved out, a year after they stopped paying. For $1,550, she said, they now rent a three-bedroom, two-bath home with a yard in the front and back -- a feature their first home, with a monthly mortgage payment of $2,250, did not have. The new home is twice the size of the old one with twice as many bathrooms. Their old home was foreclosed upon a month after they left and, Shelley Kluz said, is still on the market for $142,000.

They only moved five minutes away, she said, and she still drives by it occasionally. Her 7-year-old has taken it the hardest, having known no other home, she said, followed by her husband. "I think that's just a guy thing," she said. "I think he was more emotionally invested in the house because he spent a lot of his free time fixing it up. And then there was the whole stigma of being part of the foreclosure crisis."

"The American Dream, I don't think that that's really something that everyone should aspire to. There's more to life than owning a home," said the 37-year-old mother of three children. "This teaches you, what do you place value on? A piece of property? What things are really important?"

Her family, she said, felt guilty about not upholding their end of the contract.

"But that said, it was the best thing we could have done. Since we walked away, our house has only dropped further and we had no hope of getting out from under it," she said. Now, "We actually have available spending money to do fun things with our family, we pay less money for a completely finished house, my kids have a backyard with grass, and best of all, we can breathe."

'PEOPLE SHOULDN'T FEEL ASHAMED'

Del Phillips stopped paying on his Chicago condo in November 2009, two months before he contacted HuffPost and 10 months after he lost his job. His short sale efforts were rejected and he was denied a modification because, according to a letter sent to him by his bank, his "unemployment is not of a permanent nature." He was also rejected by Obama's Home Affordable Mortgage Program, he said. He took his story to the local press and was stunned at the vicious response from readers.

"We encourage people to work hard, get an education and strive for things. But, when there's a bump along the way and we need a helping hand for a short time, we're spit at without any support," he said. "For a country that touts its devout following of Christianity -- which is rooted in the teachings of a Jesus who said to love thy neighbor and help thy brother and sister -- it was really a fun lesson in hypocrisy."

And the reality was that every institution Philips dealt with -- from the government to his bank -- offered him no choice but to walk away.

Phillips filed for bankruptcy and plans to move out in March, knowing he could be foreclosed on any moment. More than 15 months of paying only the condo association fees helped him get by during his jobless stretch. And the bank was right: his unemployment was not permanent. He found a job in October that will pay enough for him to afford to rent when he moves -- this coming Saturday, 16 months after he stopped paying his mortgage.

"I feel like we have a stigma on things like bankruptcy, but those people shouldn't feel ashamed," Phillips said. "Yes, some people abuse, like Teresa on 'Real Housewives,' but I'm hoping everyday people who are going through this can find some strength in what I've done and ask, 'Why should I care about the bank if the bank doesn't care about me?'"

Despite his bankruptcy, he said, he has more offers for credit cards than he can handle.

HAPPIER, BUT NOT PROUD

Andrea of Oakland, Calif., who let her property go into foreclosure last year, says it was "clearly financially the thing to do." After buying her first condo in the Oakland foothills, her property's value dropped from $440,000 to $250,000 in just three years, and her marriage fell apart.

"In terms of quality of life and emotional pressure, I'm much happier now," said the 38-year-old Andrea, who didn't want her last name used in this story. Now she pays $1,500 a month for an apartment in Rockridge, one of the East Bay's most coveted areas. Its leafy streets and atmospheric cafes make it a particularly desirable neighborhood for singles.

In some cases, the mortgage money not going to banks finds its way into the local economy and gives walk-aways an ability to breathe easier. "I bought groceries and not just a few bags, but the liberating feeling of filling ones pantry for a change," says Zannah Becker, who stopped paying her mortgage in Seattle. "I did not have to walk to the market with calculator in one hand and coupons in the other and make choices between what we had to have to get by and a few simple extras like a bottle of diet soda for my husband or a small treat for our daughter."

Having worked as a loan assistant, Andrea told HuffPost she initially thought she'd be able to navigate the system. "I figured I would be well-equipped in my knowledge from my previous job about how to figure it out," she said, "and I was shocked honestly at their level of disinterest -- it was either disinterest on their part in working it out, or lack a of just being organized. But to me, them not being organized to work it out was a symptom of there not being a financial incentive for them to work it out."

When the bank finally foreclosed on her, Andrea said she just let it happen -- she felt there was nothing else she could do. "I had gotten in over my head, and I had gone through a divorce, and I was struggling to re-balance my life financially," she said.

When asked if she had advice for homeowners in similar situations, she said people shouldn't be afraid of walking away. "I think if someone is being responsible and trying to work it out, and they give it everything they can, then it's okay to do what you have to do, like a business would," she said. "A lot a lot of people are going through it right now, so maybe five or 10 years down the road, there won't be so much stigma."

Still, she asked HuffPost to keep her full name a secret. "To be honest, it's just embarrassing and not something I'm proud of," she said.

Shaming homeowners is one option for a bank dealing with someone who has made the calculation that they are better off walking, and that's part of the pressure to stay that homeowners we spoke to felt.

Homeowners also say they've felt little support from the federal government, particularly through its highly-touted, and largely ineffective, Home Affordable Mortgage Program, or HAMP. The Obama administration set up the program to help homeowners modify their mortgages but very little modification has occurred.

In fact, HAMP may have been more helpful to banks than to homeowners

A group of senior Treasury officials, which included Secretary Tim Geithner, admitted as much to financial bloggers at a meeting this summer. "Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole," wrote one blogger of the meeting. "Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least...The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks."

Politicians and the media tag-teamed homeowners thinking of walking away last summer. Republicans cited the Wall Street Journal in successfully pushing language through the House that would punish strategic defaulters. "The Wall Street Journal has reported on families that have chosen to stop paying their mortgage and instead use the extra money they are saving each month to 'buy season tickets to Disneyland...take a Carnival cruise to Mexico...' and go out to dinner more often," reads an email from a top House floor staffer GOP offices. House Republican leadership in an e-mail to colleagues explaining the anti-strategic-default effort. The legislation didn't become law, but it sent a signal.

Fannie Mae, the government-owned titan of the mortgage industry, has also been ready to warn homeowners about their financial duties. "Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting," Terence Edwards, a Fannie executive, said in a June statement. Edwards said homeowners who strategically default or fail to work "in good faith" to avert foreclosure would be ineligible for new Fannie Mae-backed mortgages for seven years.

Freddie Mac, Fannie's government-owned counterpart, has adopted the same policy.

Fannie, in its statement, also warned it would pursue "deficiency judgments" in court that would allow it to recoup from borrowers the difference between the value of a home in foreclosure and the outstanding loan a bank still has on its books. After inflating the bubble until it burst, banks essentially now want to be insulated from their mistakes by dunning borrowers for every last penny. Deficiency judgments are allowed in 39 states and were a nagging concern to many of the homeowners we spoke to.

The IRS may also loom over homeowners who walk away.

Under current law, thanks to a measure spearheaded by Rep. Brad Miller (D-N.C.) in 2007, the IRS cannot come after homeowners after they walk away. Before that law took effect, if a bank took, say, a $200,000 hit on a foreclosed home and "forgave" the debt, that forgiveness would be counted as taxable income for the former homeowner. A note to the fence-sitters: Miller's law expires at the end of 2012.

FAMILY VALUES

Ray Scott, 45, lives with his wife and two kids in Ferndale, Mich., a suburb of Detroit, where the house he bought for $140,000 five years ago is now worth $90,000. "Last year we were trying to figure out whether it would make sense to walk away from the house or not, considering we're never going to make it back -- at least not in my lifetime -- the equity that we already lost," he said.

Scott mulled many options, including foreclosure and a short sale, but the bank wouldn't approve a short sale and he feared walking away would ruin his credit.

Scott said he ultimately decided it was in the family's best interest to stay. With his wife in nursing school, she needed a good credit rating to qualify for student loans. "If we'd decided to let the home go into foreclosure, or tried to go through with a short sale, that would have had an immediate negative impact on her credit rating, and it would have made it really difficult for her to qualify for student loans," Scott said. "I didn't want her to be in that position, where she wouldn't be able to finance her education."

Further, with both his sons recently diagnosed with autism spectrum disorder, Scott felt staying put and having a stable place for his kids was important. "We live in a good community," he said. "There are good schools, good people, we know all our neighbors. People look out for each other here."

If not for the family concerns, Scott said he would have walked away in a heartbeat. "If it had just been myself and my wife, if the kids hadn't been involved and she'd been all done with school, it would have been a really easy decision to make to walk away," Scott said. "We're so far under, we're never going to recover the amount of money that we've already lost."

HOME IS HOME

Kirk Arthur, a 43-year-old software sales manager from Miami, bought his house for $285,000 in 2008. At the time, he thought it was a steal: the house had been on the market for $450,000 only a year earlier. Now he estimates it's worth just $150,000.

"We figured the price couldn't drop much lower," Arthur told HuffPost. "Now we can't foresee our condo appreciating even close to the $285,000 we paid for it two years ago."

Fortunately, Arthur said, he and his husband were able to negotiate with the bank to refinance their mortgage loan to a 4 percent interest rate, reducing their payments by $500 per month. He feels like things have turned out all right.

"At the end of the day we were never in any danger of being homeless or even losing our home," Arthur said in an email. "Yes, one of us lost our job during the hard times (me), but we managed through ... I found a job within two weeks of getting laid off -- twice. The job I have now is in line with my salary requirements. It's sort of a happy ending."

Though the value of his home continues to drop, Arthur says he's not interested in moving. It was hard to find a home that fit his needs and budget in an area where he wanted to live, Arthur said, and moving again would be expensive. "I'm not 25 years old, I'm 43," he said, "I've got stuff." What's more, Arthur says that while property values in the area have dropped, the price of rentals has risen, minimizing any potential walkaway savings.

But more than anything, it's the idea of home that Arthur is unwilling to relinquish. "It comes from my parents," he said of his desire to own. "Your home, your house is such a symbol of status, an important indication of where you are in life," he added. "You can paint it, express yourself, make it your own ... We're happy in Miami."

FORECLOSURE AS THE NEW DIVORCE

Jon Maddux is CEO of You Walk Away, a California-based company that helps homeowners navigate foreclosure. Founded in 2007, the company has assisted more than 4,000 people navigate foreclosure, according to its website. Maddux told HuffPost that fewer and fewer people are sobbing when they call for help.

He said that's because of growing cracks in the old chestnut that foreclosure victims are "financially irresponsible" or "deadbeats." Same as what happened with divorce, he said. "People thought of it as horrific if someone was to get a divorce," said Maddux. "And then, over the years, it was like, well, okay, they got divorced. It's understandable because that's what a lot of people do."

Some 60 to 70 percent of You Walk Away's clients actually can afford their mortgage payments, Maddux says; most people just need assistance in handling an exceptionally-bad property investment. Maddux thinks renting is the future; statistics bear that out. According to U.S. Census data released this week, homeownership rates have dipped to their lowest level since 1998. "You can do whatever you need to do," said Maddux of renting. "It's important to be able to move if you find a job ... in another city."

TRAPPED ON AN ISLAND

Brian Shiro, 32, lives with his wife and 3-year-old son in Ewa Beach on Oahu, where he said the house he bought for $411,000 in October 2005 is now worth only around $250,000. Shiro, who said he earns a six-figure salary working as a geophysicist, says he can afford his mortgage, but half of his income goes to making the monthly payments. The bigger problem though, is the lack of freedom.

He'd like to pursue other career opportunities, he says, but stands to lose hundreds of thousands of dollars if he moves now. Shiro bets that in 10 or 15 years, his home will recover its value, but even that assumption is a gamble. In the meantime, he's unhappy being trapped on the island. "I've had to turn down some job offers, I've had to reconsider educational opportunities," says Shiro, who recently applied to a doctoral program in civil and environmental engineering in the San Francisco Bay Area.

"All sorts of things that would advance my career would require relocation," he said. What's more, his wife is pregnant with their second child, and Shiro feels his family has outgrown the space. "A four-member family in a small town home is a little cramped," he said. "It's an aspect you don't hear talked a lot about too is people who are playing by the rules, making the payments, but for whatever reason just want to try to get on with their lives and can't because they're stuck in a holding pattern."

PEER PRESSURE

When he contacted HuffPost last year, Wayne King said he was trying to do a short sale on his house in Columbus, Ohio, which he'd bought in 2002 for $128,000. Six years later, in 2008, he left his job as a professor at Ohio State University for a new gig at a software company outside of Boston. The short-sale process hadn't been going well, despite the new floors and carpets King said he and his wife had installed.

"When I owe $107,000, I can't afford to take $80,000," he wrote, referring to the lowball offers he'd received. "I am up-to-date on my mortgage, but I don't know how long I can afford to keep paying the mortgage along with utilities and upkeep in one state and rent in another state."

By then, King had already soured on the folk wisdom about homeownership. "People are fed this storyline that buying a home is the best investment you can make," he wrote. "Something that will always appreciate and never lose value, but buying a home has been the worse investment I have ever made."

His attempts at a short sale didn't pan out. King said this year that his lender appraised the home at a level nobody would pay. He said he looked into renting the place out, but discovered that at the going rate for rents, he'd still be losing money. He can afford to continue paying the mortgage, but doing so would squeeze the family finances -- he said he and his wife just had a baby -- so now he's ready to walk away.

King is trying to do a deed-in-lieu of foreclosure, which is a process similar to a formal foreclosure but widely believed to be less damaging to a homeowner's credit. His understanding, after speaking to his bank and to counselors from the Department of Housing and Urban Development, is that he needs to be delinquent by at least one month for this to work. Then, he said, his bank told him it will take five months or more for the process to finish up. (HUD's guidelines say a DIL should not take more than 90 days and that current borrowers can still be eligible.)

"It's this hopeless situation where there's nothing I can do except sit on my hands while these four or five late payments end up on my credit report," he said.

Every month the deed-in-lieu process continues, the Big Three credit-monitoring bureaus will hear from the bank that King is delinquent, and they'll plug that info into their proprietary algorithms for determining his credit score, which will sink lower and lower. King, a mathematician who works for a company that creates algorithms, is frustrated that his credit score is calculated in a secret way and that it's impossible for him to know exactly how much lower the score will go.

King's algorithmic background makes him particularly sensitive to the vicissitudes of his credit score, but everyone else in the pack also spoke either with concern about their score or relief that they had been able to let go of it -- like a Taoist on the path to a higher state of being. There's a practical reason for that: a low score makes credit harder to access and life harder to live. But it's also part of the reality that a low score will destroy someone's personal finances.

A spokeswoman for Experian, one of the Big Three credit reporting bureaus, said there's no way to know exactly how badly any given financial decision will hurt a person's credit score, or even if a deed-in-lieu will be better than a foreclosure.

"There are hundreds of different credit scores out there in the marketplace," the spokeswoman said. "Credit scores analyze the information from an individual's credit report, and no single factor can be considered in isolation. For that reason, any given item can have a different point impact for each individual, even when the scoring system used is exactly the same. It's not a formula, such as 'Two delinquencies plus a foreclosure plus seven accounts all in good standing equal this score.' It's much more complex, and that's why we really can't provide an exact point value for a deed-in-lieu-of-foreclosure, a short sale, foreclosure or a bankruptcy."

Meanwhile, King's ongoing mortgage mess is an occasional topic of water cooler discussion at the office. "It's embarrassing for me because I have to work in a very educated, more well-off environment, because most of the people I work with have Ph.D.s and probably make far above the median income," he said. "So to be in the position where you're -- they're constantly asking about the house. They all knew I had a house I was trying to sell."

While concerned about his credit score, King doesn't want to feel like a deadbeat, either.

"I've always paid my debts. It's something that's instilled in you," he said. "You get it from the media. I was just watching Kudlow not that long ago and he was harping on the obligation to pay your debts. It just kind of permeates."

LET THEM EAT CAT FOOD

CNBC anchor and noted oligarch Larry Kudlow articulated the mainstream position against strategic defaulters in a May column on CNBC.com. "[J]ust because a home loan is 'underwater' -- meaning its value is lower than today's current market price -- why should a responsible person whine about it and walk away?" Kudlow wrote. "Why not service this loan for the longer term and wait for prices to improve? That's called personal responsibility."

This is in keeping with received wisdom about the evils of foreclosure.

As Brent White of the University of Arizona's law school noted in an October paper, "the predominant message of political, social, and economic institutions in the United States has functioned to cultivate fear, shame, and guilt in those who might contemplate foreclosure."

One can think of keeping the strategic default rate low -- White's paper put it between 2.5 percent and 3.5 percent -- as a slow-drip bank bailout. With rescued banks now profitable yet refusing to modify underwater mortgages, the widespread fear that prevents more strategic defaults "has led to distributional inequalities in which individual homeowners shoulder a disproportionate financial burden from the housing collapse," White wrote.

In other words, homeowners who shy from strategic default are collectively doing Wall Street and the banking system another favor -- beyond just footing the bank-bailout bill as taxpayers.

Yet the moral argument is out of sync with some basic financial logic. As White sees it, plummeting home prices mean: "Millions of U.S. homeowners could save hundreds of thousands of dollars by strategically defaulting on their mortgages."

Data suggest that wealthier Americans, not those with lower or mid-range incomes, have a greater proclivity for punting their mortgage obligations by embracing strategic defaults. The New York Times reported in July that more than one in seven homeowners with loans of more than $1 million are seriously delinquent, compared with one in 12 homeowners who owe less than $1 million. It's a stat analysts chalk up to strategic default.

"The rich are different: they are more ruthless," Sam Khater, CoreLogic's senior economist, told the Times.

So are some big, well-heeled corporations. For example, investment bank and bailout recipient Morgan Stanley walked away from five San Francisco office buildings at the end of 2009.

Real-estate company Tishman Speyer -- which also leases space to HuffPost for its Washington, D.C. office -- strategically defaulted on the biggest residential property deal ever in January 2010, around the same time Wayne King and others were pulling their hair out over whether they should do the same.

And the Mortgage Bankers Association, lobbyists for mortgage lenders, walked away from their own headquarters in Washington, D.C. in February 2010. (The MBA did not respond to requests for comment for this story.)

Peter Fredman, a foreclosure defense attorney in California, said he was getting so many calls from people who wanted to sue over their exploding interest-only mortgages that he decided to set up a "strategic default" calculator online as a public service. Instead of suing some penniless broker, he kept having to suggest, why not just walk away?

"Ironically, a lot of people who feel that special obligation [to pay a mortgage] are the people in the worst position," Fredman said. "Upper-class people, they have no problem with what's going on. They have bigger considerations."

Fredman's website puts it like this: "From the institutional lenders' point of view, you should eat cat food and take your kids out of school before you stop making your mortgage payment. But that is because institutional lenders don't eat or have kids. They are fictitious entities, constitutionally dedicated solely to the pursuit of money. Repaying your debts may be a matter of personal integrity that you may or may not be able to afford. But you have no moral obligation [to] the financial institutions because they do not operate in a moral universe."

'WE KNEW THESE PEOPLE'

Howell Ellerman teaches real-estate classes at Folsom Lake College in Folsom, Calif. Last fall, a student in his thirties asked Ellerman about the meaning of financial responsibility and the hard realities of home ownership in the wake of the housing meltdown.

"He's in a house that is $500,000 underwater. I think they bought it for $1 million," recalled Ellerman, 51. "He asked me in front of the whole class, 'Should I walk away from my house?'"

"I can't give you advice," Ellerman said he told his student, "but in the world we live in, there isn't a better time to walk away. You shouldn't feel any compunction."

Ellerman himself had been prepared to walk away from the home where he and his wife and kids had lived for 12 years. They wanted to buy a bigger house 10 miles away asking $595,000 as a short sale after initially listing at $1.5 million.

"We made an above-asking price offer and are now in contract to buy the house and move with our five kids there," Ellerman wrote. "The question is what do we do with our current house, which we love and have taken great care of."

He wrote that they wanted to sell or rent out the previous house but were willing to walk away and take the credit hit if the bank wouldn't cooperate. It didn't -- Ellerman said the bank initially approved them on a loan for the new house but then decided to foreclose on it instead, so they're still in their old house.

It sits on a cul-de-sac with 10 others. Ellerman said four emptied in the past few years. He's certain two are foreclosures. He has no idea where any of the families went; he figures they couldn't handle the shame.

"Seriously, we knew these people. They'd been over for Christmas, and then all of a sudden we see the U-Haul truck pull up," he said. "When people leave their houses they don't even say goodbye. They leave like in the cloak of darkness in a U-Haul truck and you don't even know where they go."

THE AMERICAN DREAM

When Bob Balint of Sarasota, Fla., wrote to HuffPost last year, he was asking for advice rather than looking to tell his story. We told him to consult with a lawyer -- good advice to anybody thinking of walking away -- and he did.

Balint, 55, a father of two, is a dispatcher for the local transit system, and his wife teaches young children. He said their combined income of $51,000, boosted by occasional overtime, was enough to make their mortgage payments. But overtime has given way to furloughs and their house, which they owe $225,000 on, is falling apart.

Balint lives in a part of the country particularly ravaged by the housing collapse and similar houses nearby are going for as little as $40,000, he said. "It's like buying a Lexus," he said. "You can almost come up with that in cash. Gimme two years without paying every Tom, Dick and Harry that I owe and I'll have it."

The Balints were late on a few payments through 2010 but made them up each time. "We're hanging in there by hook and crook," he said. After a year of wrestling with the decision, however, the Balints are finally pulling the ripcord. This January, they made their last mortgage payment. They're walking away from the home they've lived in since 1994 to rent a better, cheaper place.

He's looking forward to the freedom that will come with renting. "You're almost better off not owning. If you're company buckles up, you're stuck, you can't move to the jobs," Balint said. "The American Dream is for shit."

(Correction: An earlier version of this story incorrectly described how many homeowners in the United States are underwater on their mortgages. Nearly one-quarter of all homeowners with a mortgage are underwater, not one-quarter of all homeowners generally. About 30 percent of the country's housing stock is mortgage-free.)