I’ve heard from a couple of friends that people are starting to “get smart” about this whole loan debacle. They put their house on the market for what it would take to pay off the loan(s) and if it doesn’t sell after a few months, they stop making payments and live rent free until they are forced to move out – at least 6 or 7 months. They are able to save $$ on living expenses during those months – I’m assuming they shut off their sprinker systems in addition to not paying their mortgage. From what I understand, “purchase” loans are non-recourse; the only thing that will happen to these people by walking away is bad credit. However, with refinance loans banks have recourse to get a judgement against the borrower to compensate the bank for their loss. For people that didn’t refinance and are underwater, Cramer is probably right that they should just walk away.
For those that refinanced, things are much worse in my opinion and those people probably should look into filing for bankruptcy. It would be up to the lenders to decide whether it’s worth going after them to get the $$ back.