Know when to fold 'em, know when to walk away

Parents often tell kids about choosing their battles, knowing when it's time to fight and when it's better to walk away.

Couples therapists also stress this mantra of choosing battles and knowing when to back down for the sake of the relationship.

The concept has reared its head in this housing downturn, and we're now hearing tidbits about homeowners who are able to stay current on their mortgages instead choosing to walk away for fear of too much lost equity.

Walk away from their mortgages? That's got to be listed somewhere on a tally of "worst-case scenarios" for lenders in this housing mess.

Calculated Risk pulled some quotes here from Wachovia and Bank of America executives pointing out a change in attitude towards mortgage defaults. The blogger also calculates that around 10 million to 20 million homeowners will owe more on their houses than they will be worth over the next few years, which could feed into this attitude. After all, why stay and fight to keep a house you may now feel like you paid too much for in the first place?

There was a lot of emphasis on equity during the housing boom. Homeowners took pride in knowing their investment doubled within a few years in some cases. I often heard friends and acquaintances giving current analyses of their home values like it was something they checked as often as their savings account balances. Many took out home equity loans to cash in on the rapid appreciation.

It seems unbelievable that a significant number of homeowners would rather walk away from their mortgages and risk ruining their credit rather than swallow the unfortunate circumstance of negative equity and maybe stay in their homes longer than they had anticipated to make up for it. But as we pointed out earlier this week: this downturn is turning emotional and some homeowners are getting angry over lost value. (One couple is even suing their real estate agent over this.)

Readers: have you come across homeowners with this "let's just walk away" attitude?

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