This is all going to come down to can you afford the situation you are in? If you can, the moral high road is to ride out the depreciation long enough so values recover, and think of your home as an expense, not an investment. If you can’t afford it then you have to walk away. I can tell you, in the latter case, if you are a moral, responsible person you WILL experience some guilt from this decision. If you’re not, then hopefully there are few of you, and you won’t destroy our financial system.

Unfortunately, I think we have a large number of people in that latter category who cannot sell, cannot refinance, and to add insult to injury, can no longer afford their monthly payments. I feel a little bad for these people, but they disregarded the fundamentals and bet their financial future on never-ending depreciation. I think the root of the problem is in our country’s financial literacy, and how the fundamentals are not taught to the average person. I have a relative in 4S with a $1.5 million property who was wondering when I was going to buy a house like that. They looked at me funny when and I simply stated I couldn’t afford it on my physician’s salary, and I know I can document a much higher income than they can. They will learn the fundamentals the hard way, which is effective, and I find the retention tends to be much better.

I do believe SDR may have a point, and that eliminating non-recourse debt is the future, but with our current situation, making all the banks the bagholders is not the answer, as they cannot possibly absorb the numbers involved and survive. I have no idea how this is going to resolve itself, but a long hard recession seems like the best cure, and unfortunately, I think the taxpayers are going to have to absorb some of it. Remember the S&L’s? Why do you think it can’t happen again?