Interesting story from 60 Minutes last night about walking away from an underwater mortgage. As I have stated several times, I think you should walk away from a mortgage if you can rent an equivalent place for considerably less than your current mortgage. This is a contract between two parties. Each party should understand the risk they are undertaking when the contract is signed. The banks failed in this regard miserably. They gave mortgages to folks who should have never received a mortgage. Further, the banks required no skin in the game as far as a downpayment, and the banks put pressure on home appraisers to meet the rising prices in the market. The banks did this because they were making tons on writing these mortgages as the investment banks securitized these mortgages.
Now that their gravy train has run its course, they are pulling the old moral argument out to guilt borrowers from following the proper business move. Of course, the banks aren’t afraid to walk away as Morgan Stanley walked from a $5 Billion commercial development in San Fran, and the mortgage bankers association just short saled their headquarters in DC.
When making a decision to stay or walk away, one needs to examine several factors such as how long they plan to live there, is this their dream house, are kids in a good school, etc. However, the cost of ownership relative to renting must be one of them. Think logically, not emotionally. Also, see a real estate lawyer before making any final decision on walking away.