When is it OK to walk away from your mortgage?

Check out this week’s BusinessWeek cover story, The Home Price Abyss: Why the threat of a free fall is growing. I and Mara Der Hovanesian wrote the story with help from a bunch of other BW staffers. Our core argument is that price declines could potentially feed on themselves. Big price declines make people unable to keep paying their mortgages (because their ARMs are resetting and the banks won’t refinance) or unwilling to keep paying their mortgages (because they see no point in throwing good money after bad). That drives up the foreclosure rate, which drives the prices of neighboring homes, adding to the downward spiral. We’re already seeing this happening in some of the markets with the worst price declines such as southern California, Nevada, Arizona, and southern Florida. The question is whether it could spread to more areas and become a national problem. One person we quote in the story says that the taboo on walking away from your home and leaving the keys behind could be diminishing. He says that in commercial real estate it’s business as usual. I would like to know what Hot Property readers think about the pros, cons, rights, and wrongs of walking out on a mortgage.

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