NY Times - Homeowners just walk away
This (2-2-2010 Business Section) article reports a U.S. Treasury projection that by June 2010, 5.1 million homeowners will own a home worth 75% or less of the mortgage amount. This 75% of home value to mortgage value ratio is referred to as a "critical threshold."
Many (about 17%) of these people may just walk away from their home and default on the loan without attempting loan modification first. (Broker Note: Keep in mind that the US Government owns/insures 90% of mortgages in U.S. through Fannie, Freddie, FHA, VA...)
As the article says, your credit score takes a big hit. (No dah!) But just remember that your credit score is used by employers, credit card companies, utility companies, your insurance company for rates, and almost every financial/rental housing contact you have and many other contacts.
This article didn't mention that people still owe the debt and may be "chased" or "hounded" by collection agencies. You sign a Promissory Note that says you will pay the mortgage...if the bank forecloses on the property and sells for less than the mortgage balance , you owe the difference(and you can bet they will include their legal, marketing and sales costs to determine the difference). It is often referred to by the courts as a "deficiency judgment". Same thing happens in a short sale...If the bank has any reason to believe you have resources, it (and future debt collectors) may come after you.
I can envision a day where they will be legally able to come after your 401K...
Summary: When you agree to pay a mortgage over 15 to 30 years, you never know what your life will be like. Life changes happen to everyone and I understand the stress. It's a tough decision to walk away and there will be consequences. But don't think the lenders are going to leave you alone - you could be hounded for years...

