A quarter of American homeowners now owe more on their mortgages than their homes are worth and millions of them are thinking about just walking away. "Strategic defaults" on so-called underwater mortgages are on the rise, although abandoning mortgages is controversial and, to some, immoral. "We made a bad investment," one California homeowner tells NPR, but "I'm from a finance background. It makes no economic sense for us to hold on to this asset."
MIT economics professor William Wheaton says up to 2.5 million homeowners may end up walking away from their mortgages, which "would really mean another tidal wave" for the housing market. Since lenders encouraged overspending when the market was at its height, they should "share in the pain" by meeting borrowers halfway and refinancing mortgages, even when the homeowner can afford to keep making payments under their current loan, he says.