Learning To Walk - Fear, Shame And Your Underwater Mortgage

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February 7, 2011

Ryan Grim HuffPost Reporting

[email protected] UPDATES FROM RyanLike

Arthur Delaney HuffPost [email protected] UPDATES FROM ArthurLike

Lucia Graves HuffPost [email protected] UPDATES FROM LuciaLike

Learnin To Walk: Fear


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Shame And YourUnderwater Mortgage

First Posted: 02/ 3/11 03:44 PM Updated: 02/ 4/1110:46 AM

WASHINGTON-- Nearly 1 in

every 4 U.S.homeownerswith mortgagesowe more ontheir homethan it's worth.

Once a month,those 10.8million are

faced with a question that cuts to the core of theAmerican Dream and offers a confusing collisionbetween 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 mostpeople: Of course I should keep paying, it's theright thing to do. Besides, the argument went, a


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home is a great investment. Today, in the wake ofthe most seismic housing collapse in the nation'shistory, that logic has increasingly been challengedby homeowners despondent about their lack of

options.

Although researchers find that some underwaterborrowers who could continue paying theirmortgages strategically default anyway, the vastmajority continue to pay. Many homeowners, out of

a combined sense of fear, shame, courage andmorality, resist making what is otherwise a logicalfinancial decision.

Walking away from a home, however, is more thanthe sum of a few business decisions. For manyhomeowners, it's either an act of civic defianceagainst a system they no longer buy into or theend result of being shuffled around by institutionsthat don't help them solve their financial problems.

While walking away is a frightening and dangerousstep into the unknown, millions have beaten thepath in the past few years. To find out what it's liketo walk away, The Huffington Post asked readerswho were considering making the move, or whohad already done so, to write in and share theirstories. That was in January 2010. A year later, wefollowed up with them to see how they reflected on


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the experience.

We initially heard from 58 people from all over thecountry who fit the criteria. Ten of them have

become unreachable over the past year, but theremaining 48 were eager to share their stories. Ayear later, only eight of them are still paying theirmortgage. Some requested anonymity because ofthe shame associated with foreclosure; othersrequested it because they don't want to draw

retribution from the banks. But there were thosewho were happy to share their tales on the record.

Almost universally, the homeowners we spoke withtook personal responsibility for their situations,declining to blame the banks or politicians. Yetnearly all of them faced similar struggles in theirattempts to work with their banks: lost paperworkand little interest in finding a financial compromise.

The hostility people felt from their banks made thedecision to walk away easier for many, and somenow even revel in it, celebrating a break from asystem they see as rigged against them. "We getdaily calls from creditors and banks that threatenthis and that, and I just laugh knowing I am helpingto bring down the system that has brought us alldown and continues to reap giant profits at theexpense of the little guy," said one. Others are still


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haunted with shame by the decision. Most saidthey felt a mix of both.

Many of the homeowners said they felt alone and

powerless in their interactions with the banks andwere curious to hear what other people in similarsituations had to say. "There should be supportgroups for people who have to deal with thesebanks," 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 withpressure, and they made it feel like you're at theirmercy."

Following Burton's suggestion, HuffPost contactedMeetup.com and set up the infrastructure forunderwater homeowners to do just that. Thiscoming Tuesday, homeowners across the countrycan use Meetup's tool to organize small gatheringsof homeowners who have walked away or whohave considered doing it. Often, the best advicecomes from a neighbor.

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


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Burton.

After years of failing to get approval for a "shortsale" of his home, or even a decent mortgage

modification, Burton said he stopped paying inAugust 2009 to help himself financially and to gethis bank's attention. (A short sale occurs whenlenders accept a sum less than the outstandingvalue than a mortgage loan, in lieu of forcing aborrower into foreclosure.)

He contacted HuffPost several months later andsaid he was still trying to get a short sale approvedor persuade the bank to take the house inexchange for simply letting him walk away. Thebank was refusing.

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

"It feels great," Burton said without hesitation. "I'mstarting again. I've still got my talent, I've got myintelligence. I've got my health. At least I'm free ofthe enormous amount of stress that I had and thefrustration of doing the best I could and it wasn'tgood enough. It wasn't working. Ultimately, I made


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a decision that my physical and mental health wasmore valuable than this house and my investmentin it."

Burton went more than a year without paying hismortgage before persuading the bank to accept ashort sale. "The mortgage company was not wilingto work with me. The businesses that we havecreated to serve us are enslaving us. They're notlistening to us, they don't even pretend to care

about us. Really, our only option is to do what I'mdoing, which is to fire them all. I'm doing everythingI can to remove them from my life," he said.

Lenders and servicers say such decisions willdestroy borrowers' credit record and render themnon-entities in the U.S. economy. Burton said thatwhen he bought his Long Island home in 2000, hiscredit score had been somewhere in the 600s, anaverage figure. He allowed HuffPost to run hiscredit score through Equifax, one of three majorcredit-monitoring bureaus. As of Tuesday, after hisordeal of three years, his score is 614 -- belowaverage, but not savaged. A few months ago, hehad no trouble buying an iPhone. He ignores themany credit card solicitations that come his way.

The purpose of HuffPost's investigation was not todetermine who or what was to blame for the


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predicament that the homeowners foundthemselves in or whether they are deserving ofsympathy -- twin concerns that dominate theforeclosure discussion and will no doubt continue

with ferocity in the comment section below thisstory.

Our question was more direct: What are the costsand benefits of walking away from an underwatermortgage -- not for the banks or the neighborhood

or for society as a whole, but for the real peoplemaking the decision?

MORAL STRUGGLE

When Ernie Soto first wrote HuffPost, his mechanicbusiness was falling apart and he was behind on

his mortgage. Efforts to modify his loan had gonenowhere and he was considering filing forbankruptcy, walking away and buying a mobiletrailer for his family to live in. "We laugh about itnow, but we went through hell and back and backto hell," he said a year later, after filing forbankruptcy and telling the bank it could have thehouse.

Rock bottom came when he drove to the local vetto have his dog put to sleep. The repo man was inthe parking lot. "I can't leave until I take your


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truck," he told Soto, 47.

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

Soto drained his savings paying the mortgage sohe could keep his credit score high and maintainhope that a loan would come through for his smallbusiness. But it never did. Shortly after writing toHuffPost at the beginning of 2010, he and hisfamily walked away. "We'd had enough. We movedto a trailer park, a mobile home. We bought mydad's RV, figured we've gotta live somewhere."

Technically, Soto still owns his home and heroutinely 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 haswalked away, that he's done with them. Had herealized it would take his bank so long to foreclose,he said, he could have stayed in his house forfree, but he was afraid that his bank would movefaster than the guy who repossessed his truck.And didn't want to put his family through thetrauma of an eviction.

"I was in unfamiliar territory. I don't lose housesevery so often," he said. "I was thinking it'd be likethe car, they'd come throw me out in three


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months."

Soto, a conservative Republican, said he hascome 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 minutehere -- I didn't get respect from the mortgagecompanies when I was asking for help. I didn't getrespect 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 goodSamaritan and just stay there? I asked themortgage company, 'What's gonna keep me fromgiving you the keys?'"

Banks are responding to that question by usingtheir power in Washington -- influence purchasedwith the checks people send to their banks eachmonth -- to make it financially tougher to liberateoneself from an underwater mortgage, just asmillions are on the brink of making their break.

'THERE IS SUCH A THING IN THE BIBLE'

Shelley Kluz said she saw a house in herneighborhood just like her own selling for $90,000."It made me sick to my stomach, because we werealready house-poor," she said of the place she andher husband paid $325,000 for in 2004. Her


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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 toour pastor, talked to our parents and had a reallyhard time coming to grips with the idea that wemight not pay our mortgage, because we werealways 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 debtforgiveness," she said. "We didn't want to get inbad with God, doing something morally He thinksis awful."

In July 2009, on the informal advice of a bankrepresentative, the Kluzes stopped paying theirmortgage to encourage their bank to approve ashort sale. The bank initially accepted a short saleoffer, but the couple was told that investors hadlater rejected it. The bank suggested Shelley Kluzapply for a modification, apparently unaware she'dbeen trying for the past year. She did so anywayand was rejected. The family was still in the housewhen she wrote to HuffPost in early 2010.

"We are in a weird limbo state of waiting. So, longstory short, we are walking away. We are so fed up


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with this whole process," she wrote at the time.

Six months later, she and her family moved out, ayear after they stopped paying. For $1,550, she

said, they now rent a three-bedroom, two-bathhome with a yard in the front and back -- a featuretheir first home, with a monthly mortgage paymentof $2,250, did not have. The new home is twicethe size of the old one with twice as manybathrooms. Their old home was foreclosed upon a

month after they left and, Shelley Kluz said, is stillon the market for $142,000.

They only moved five minutes away, she said, andshe still drives by it occasionally. Her 7-year-oldhas taken it the hardest, having known no otherhome, she said, followed by her husband. "I thinkthat's just a guy thing," she said. "I think he wasmore emotionally invested in the house becausehe spent a lot of his free time fixing it up. And thenthere was the whole stigma of being part of theforeclosure crisis."

"The American Dream, I don't think that that'sreally something that everyone should aspire to.There's more to life than owning a home," said the37-year-old mother of three children. "This teachesyou, what do you place value on? A piece ofproperty? What things are really important?"


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

"But that said, it was the best thing we could have

done. Since we walked away, our house has onlydropped further and we had no hope of getting outfrom under it," she said. Now, "We actually haveavailable spending money to do fun things with ourfamily, we pay less money for a completelyfinished 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 condoin November 2009, two months before hecontacted HuffPost and 10 months after he lost his

job. His short sale efforts were rejected and hewas denied a modification because, according to aletter sent to him by his bank, his "unemploymentis not of a permanent nature." He was alsorejected by Obama's Home Affordable MortgageProgram, he said. He took his story to the localpress and was stunned at the vicious responsefrom readers.

"We encourage people to work hard, get aneducation and strive for things. But, when there's abump along the way and we need a helping hand


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for a short time, we're spit at without any support,"he said. "For a country that touts its devoutfollowing of Christianity -- which is rooted in theteachings of a Jesus who said to love thy neighbor

and help thy brother and sister -- it was really a funlesson in hypocrisy."

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

Phillips filed for bankruptcy and plans to move outin March, knowing he could be foreclosed on anymoment. More than 15 months of paying only thecondo association fees helped him get by duringhis jobless stretch. And the bank was right: hisunemployment was not permanent. He found a jobin October that will pay enough for him to afford torent when he moves -- this coming Saturday, 16months after he stopped paying his mortgage.

"I feel like we have a stigma on things likebankruptcy, but those people shouldn't feelashamed," Phillips said. "Yes, some people abuse,like Teresa on 'Real Housewives,' but I'm hopingeveryday people who are going through this canfind some strength in what I've done and ask, 'Whyshould I care about the bank if the bank doesn'tcare about me?'"


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

HAPPIER, BUT NOT PROUD

Andrea of Oakland, Calif., who let her property gointo foreclosure last year, says it was "clearlyfinancially the thing to do." After buying her firstcondo in the Oakland foothills, her property's valuedropped from $440,000 to $250,000 in just threeyears, and her marriage fell apart.

"In terms of quality of life and emotional pressure,I'm much happier now," said the 38-year-oldAndrea, who didn't want her last name used in thisstory. Now she pays $1,500 a month for anapartment in Rockridge, one of the East Bay'smost coveted areas. Its leafy streets andatmospheric cafes make it a particularly desirableneighborhood for singles.

In some cases, the mortgage money not going tobanks finds its way into the local economy and

gives walk-aways an ability to breathe easier. "Ibought groceries and not just a few bags, but theliberating feeling of filling ones pantry for achange," says Zannah Becker, who stoppedpaying her mortgage in Seattle. "I did not have towalk to the market with calculator in one hand and


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coupons in the other and make choices betweenwhat we had to have to get by and a few simpleextras like a bottle of diet soda for my husband ora small treat for our daughter."

Having worked as a loan assistant, Andrea toldHuffPost she initially thought she'd be able tonavigate the system. "I figured I would be well-equipped in my knowledge from my previous jobabout how to figure it out," she said, "and I was

shocked honestly at their level of disinterest -- itwas either disinterest on their part in working it out,or lack a of just being organized. But to me, themnot being organized to work it out was a symptomof there not being a financial incentive for them towork it out."

When the bank finally foreclosed on her, Andreasaid she just let it happen -- she felt there wasnothing else she could do. "I had gotten in over myhead, and I had gone through a divorce, and I wasstruggling to re-balance my life financially," shesaid.

When asked if she had advice for homeowners insimilar situations, she said people shouldn't beafraid of walking away. "I think if someone is beingresponsible and trying to work it out, and they giveit everything they can, then it's okay to do what


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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, therewon't be so much stigma."

Still, she asked HuffPost to keep her full name asecret. "To be honest, it's just embarrassing andnot something I'm proud of," she said.

Shaming homeowners is one option for a bankdealing with someone who has made thecalculation that they are better off walking, andthat's part of the pressure to stay that homeownerswe spoke to felt.

Homeowners also say they've felt little supportfrom the federal government, particularly through

its highly-touted, and largely ineffective, HomeAffordable Mortgage Program, or HAMP. TheObama administration set up the program to helphomeowners modify their mortgages but very littlemodification has occurred.

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

A group of senior Treasury officials, which includedSecretary Tim Geithner, admitted as much tofinancial bloggers at a meeting this summer.


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"Officials pointed out that what may have been anagonizing process for individuals was a usefulpalliative for the system as a whole," wrote oneblogger of the meeting. "Even if most HAMP

applicants ultimately default, the programprevented an outbreak of foreclosures exactlywhen the system could have handled it least...Theprogram was successful in the sense that it keptthe patient alive until it had begun to heal. And thepatient of this metaphor was not a struggling

homeowner, but the financial system, a.k.a. thebanks."

Politicians and the media tag-teamed homeownersthinking of walking away last summer. Republicanscited the Wall Street Journal in successfully

pushing language through the House that wouldpunish strategic defaulters. "The Wall StreetJournal has reported on families that have chosento stop paying their mortgage and instead use theextra money they are saving each month to 'buyseason tickets to Disneyland...take a Carnival

cruise to Mexico...' and go out to dinner moreoften," reads an email from a top House floorstaffer GOP offices. House Republican leadershipin an e-mail to colleagues explaining the anti-strategic-default effort. The legislation didn'tbecome law, but it sent a signal.


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walk away.

Under current law, thanks to a measurespearheaded by Rep. Brad Miller (D-N.C.) in 2007,

the IRS cannot come after homeowners after theywalk away. Before that law took effect, if a banktook, say, a $200,000 hit on a foreclosed homeand "forgave" the debt, that forgiveness would becounted as taxable income for the formerhomeowner. 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 inFerndale, Mich., a suburb of Detroit, where thehouse he bought for $140,000 five years ago isnow worth $90,000. "Last year we were trying tofigure out whether it would make sense to walkaway from the house or not, considering we'renever going to make it back -- at least not in mylifetime -- the equity that we already lost," he said.

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

Scott said he ultimately decided it was in the


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family's best interest to stay. With his wife innursing school, she needed a good credit rating toqualify for student loans. "If we'd decided to let thehome go into foreclosure, or tried to go through

with a short sale, that would have had animmediate negative impact on her credit rating,and it would have made it really difficult for her toqualify for student loans," Scott said. "I didn't wanther to be in that position, where she wouldn't beable to finance her education."

Further, with both his sons recently diagnosed withautism spectrum disorder, Scott felt staying putand having a stable place for his kids wasimportant. "We live in a good community," he said."There are good schools, good people, we know

all our neighbors. People look out for each otherhere."

If not for the family concerns, Scott said he wouldhave walked away in a heartbeat. "If it had justbeen myself and my wife, if the kids hadn't beeninvolved and she'd been all done with school, itwould have been a really easy decision to make towalk away," Scott said. "We're so far under, we'renever going to recover the amount of money thatwe've already lost."

HOME IS HOME


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Kirk Arthur, a 43-year-old software sales managerfrom Miami, bought his house for $285,000 in2008. At the time, he thought it was a steal: thehouse 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 ourcondo appreciating even close to the $285,000 we

paid for it two years ago."Fortunately, Arthur said, he and his husband wereable to negotiate with the bank to refinance theirmortgage loan to a 4 percent interest rate,reducing their payments by $500 per month. Hefeels like things have turned out all right.

"At the end of the day we were never in anydanger of being homeless or even losing ourhome," Arthur said in an email. "Yes, one of us lostour job during the hard times (me), but wemanaged through ... I found a job within two weeksof getting laid off -- twice. The job I have now is inline with my salary requirements. It's sort of ahappy ending."

Though the value of his home continues to drop,Arthur says he's not interested in moving. It was


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hard to find a home that fit his needs and budgetin an area where he wanted to live, Arthur said,and moving again would be expensive. "I'm not 25years old, I'm 43," he said, "I've got stuff." What's

more, Arthur says that while property values in thearea have dropped, the price of rentals has risen,minimizing any potential walkaway savings.

But more than anything, it's the idea of home thatArthur 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, animportant indication of where you are in life," headded. "You can paint it, express yourself, make ityour own ... We're happy in Miami."

FORECLOSURE AS THE NEW DIVORCE

Jon Maddux is CEO of You Walk Away, aCalifornia-based company that helps homeownersnavigate foreclosure. Founded in 2007, thecompany has assisted more than 4,000 peoplenavigate foreclosure, according to its website.Maddux told HuffPost that fewer and fewer peopleare sobbing when they call for help.

He said that's because of growing cracks in the oldchestnut that foreclosure victims are "financiallyirresponsible" or "deadbeats." Same as what


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happened with divorce, he said. "People thoughtof it as horrific if someone was to get a divorce,"said Maddux. "And then, over the years, it waslike, well, okay, they got divorced. It's

understandable because that's what a lot ofpeople do."

Some 60 to 70 percent of You Walk Away's clientsactually 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 bearthat out. According to U.S. Census data releasedthis week, homeownership rates have dipped totheir lowest level since 1998. "You can dowhatever 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-oldson in Ewa Beach on Oahu, where he said thehouse he bought for $411,000 in October 2005 isnow worth only around $250,000. Shiro, who saidhe earns a six-figure salary working as ageophysicist, says he can afford his mortgage, buthalf of his income goes to making the monthlypayments. The bigger problem though, is the lack


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of freedom.

He'd like to pursue other career opportunities, hesays, but stands to lose hundreds of thousands of

dollars if he moves now. Shiro bets that in 10 or 15years, his home will recover its value, but even thatassumption is a gamble. In the meantime, he'sunhappy being trapped on the island. "I've had toturn down some job offers, I've had to reconsidereducational opportunities," says Shiro, who

recently applied to a doctoral program in civil andenvironmental engineering in the San FranciscoBay Area.

"All sorts of things that would advance my careerwould require relocation," he said. What's more,his wife is pregnant with their second child, andShiro feels his family has outgrown the space. "Afour-member family in a small town home is a littlecramped," he said. "It's an aspect you don't heartalked a lot about too is people who are playing bythe rules, making the payments, but for whateverreason just want to try to get on with their lives andcan't because they're stuck in a holding pattern."

PEER PRESSURE

When he contacted HuffPost last year, WayneKing said he was trying to do a short sale on his


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house in Columbus, Ohio, which he'd bought in2002 for $128,000. Six years later, in 2008, he lefthis job as a professor at Ohio State University for anew 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 heand 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 keeppaying the mortgage along with utilities andupkeep in one state and rent in another state."

By then, King had already soured on the folkwisdom about homeownership. "People are fedthis storyline that buying a home is the bestinvestment you can make," he wrote. "Somethingthat will always appreciate and never lose value,but buying a home has been the worse investmentI have ever made."

His attempts at a short sale didn't pan out. Kingsaid this year that his lender appraised the homeat a level nobody would pay. He said he lookedinto renting the place out, but discovered that atthe going rate for rents, he'd still be losing money.He can afford to continue paying the mortgage, but


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doing so would squeeze the family finances -- hesaid he and his wife just had a baby -- so now he'sready to walk away.

King is trying to do a deed-in-lieu of foreclosure,which is a process similar to a formal foreclosurebut widely believed to be less damaging to ahomeowner's credit. His understanding, afterspeaking to his bank and to counselors from theDepartment of Housing and Urban Development,

is that he needs to be delinquent by at least onemonth for this to work. Then, he said, his bank toldhim it will take five months or more for the processto finish up. (HUD's guidelines say a DIL shouldnot take more than 90 days and that currentborrowers can still be eligible.)

"It's this hopeless situation where there's nothing Ican do except sit on my hands while these four orfive late payments end up on my credit report," hesaid.

Every month the deed-in-lieu process continues,the Big Three credit-monitoring bureaus will hearfrom the bank that King is delinquent, and they'llplug that info into their proprietary algorithms fordetermining his credit score, which will sink lowerand lower. King, a mathematician who works for acompany that creates algorithms, is frustrated that


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his credit score is calculated in a secret way andthat it's impossible for him to know exactly howmuch lower the score will go.

King's algorithmic background makes himparticularly sensitive to the vicissitudes of his creditscore, but everyone else in the pack also spokeeither with concern about their score or relief thatthey had been able to let go of it -- like a Taoist onthe path to a higher state of being. There's a

practical reason for that: a low score makes creditharder to access and life harder to live. But it's alsopart of the reality that a low score will destroysomeone's personal finances.

A spokeswoman for Experian, one of the BigThree credit reporting bureaus, said there's no wayto know exactly how badly any given financialdecision will hurt a person's credit score, or even ifa deed-in-lieu will be better than a foreclosure.

"There are hundreds of different credit scores outthere in the marketplace," the spokeswoman said."Credit scores analyze the information from anindividual's credit report, and no single factor canbe considered in isolation. For that reason, anygiven item can have a different point impact foreach individual, even when the scoring systemused is exactly the same. It's not a formula, such


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CNBC anchor and noted oligarch Larry Kudlowarticulated the mainstream position againststrategic defaulters in a May column onCNBC.com. "[J]ust because a home loan is

'underwater' -- meaning its value is lower thantoday's current market price -- why should aresponsible person whine about it and walkaway?" Kudlow wrote. "Why not service this loanfor the longer term and wait for prices to improve?That's called personal responsibility."

This is in keeping with received wisdom about theevils of foreclosure.

As Brent White of the University of Arizona's lawschool noted in an October paper, "thepredominant message of political, social, andeconomic institutions in the United States hasfunctioned to cultivate fear, shame, and guilt inthose who might contemplate foreclosure."

One can think of keeping the strategic default ratelow -- White's paper put it between 2.5 percent and3.5 percent -- as a slow-drip bank bailout. Withrescued banks now profitable yet refusing tomodify underwater mortgages, the widespread fearthat prevents more strategic defaults "has led todistributional inequalities in which individualhomeowners shoulder a disproportionate financial


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Morgan Stanley walked away from five SanFrancisco 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 biggestresidential property deal ever in January 2010,around the same time Wayne King and otherswere pulling their hair out over whether they shoulddo the same.

And the Mortgage Bankers Association, lobbyistsfor mortgage lenders, walked away from their ownheadquarters in Washington, D.C. in February2010. (The MBA did not respond to requests forcomment for this story.)

Peter Fredman, a foreclosure defense attorney inCalifornia, said he was getting so many calls frompeople who wanted to sue over their explodinginterest-only mortgages that he decided to set up a"strategic default" calculator online as a publicservice. Instead of suing some penniless broker,he kept having to suggest, why not just walkaway?

"Ironically, a lot of people who feel that specialobligation [to pay a mortgage] are the people inthe worst position," Fredman said. "Upper-class


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people, they have no problem with what's goingon. They have bigger considerations."

Fredman's website puts it like this: "From the

institutional lenders' point of view, you should eatcat food and take your kids out of school beforeyou stop making your mortgage payment. But thatis because institutional lenders don't eat or havekids. They are fictitious entities, constitutionallydedicated solely to the pursuit of money. Repaying

your debts may be a matter of personal integritythat you may or may not be able to afford. But youhave no moral obligation [to] the financialinstitutions because they do not operate in a moraluniverse."

'WE KNEW THESE PEOPLE'

Howell Ellerman teaches real-estate classes atFolsom Lake College in Folsom, Calif. Last fall, astudent in his thirties asked Ellerman about themeaning of financial responsibility and the hardrealities of home ownership in the wake of thehousing meltdown.

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


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"I can't give you advice," Ellerman said he told hisstudent, "but in the world we live in, there isn't abetter time to walk away. You shouldn't feel anycompunction."

Ellerman himself had been prepared to walk awayfrom the home where he and his wife and kids hadlived for 12 years. They wanted to buy a biggerhouse 10 miles away asking $595,000 as a shortsale after initially listing at $1.5 million.

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

He wrote that they wanted to sell or rent out theprevious house but were willing to walk away andtake the credit hit if the bank wouldn't cooperate. Itdidn't -- Ellerman said the bank initially approvedthem on a loan for the new house but thendecided to foreclose on it instead, so they're still intheir old house.

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


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shame.

"Seriously, we knew these people. They'd beenover for Christmas, and then all of a sudden we

see the U-Haul truck pull up," he said. "Whenpeople leave their houses they don't even saygoodbye. They leave like in the cloak of darknessin a U-Haul truck and you don't even know wherethey go."

THE AMERICAN DREAM

When Bob Balint of Sarasota, Fla., wrote toHuffPost last year, he was asking for advice ratherthan looking to tell his story. We told him to consultwith a lawyer -- good advice to anybody thinking ofwalking away -- and he did.

Balint, 55, a father of two, is a dispatcher for thelocal transit system, and his wife teaches youngchildren. He said their combined income of$51,000, boosted by occasional overtime, wasenough to make their mortgage payments. But

overtime has given way to furloughs and theirhouse, which they owe $225,000 on, is fallingapart.

Balint lives in a part of the country particularlyravaged by the housing collapse and similar


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houses nearby are going for as little as $40,000,he said. "It's like buying a Lexus," he said. "Youcan almost come up with that in cash. Gimme twoyears without paying every Tom, Dick and Harry

that I owe and I'll have it."

The Balints were late on a few payments through2010 but made them up each time. "We're hangingin there by hook and crook," he said. After a yearof wrestling with the decision, however, the Balints

are finally pulling the ripcord. This January, theymade their last mortgage payment. They're walkingaway from the home they've lived in since 1994 torent a better, cheaper place.

He's looking forward to the freedom that will comewith renting. "You're almost better off not owning. Ifyou're company buckles up, you're stuck, you can'tmove to the jobs," Balint said. "The AmericanDream is for shit."

(Correction: An earlier version of this storyincorrectly described how many homeowners inthe United States are underwater on theirmortgages. Nearly one-quarter of all homeownerswith a mortgage are underwater, not one-quarterof all homeowners generally. About 30 percent ofthe country's housing stock is mortgage-free.)


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Learning To Walk - Fear, Shame And Your Underwater Mortgage

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