I hate to get in on this volatile issue but having lived through the last housing crisis in CA back in the 70's - I do want to say if you're not involved yourself it's almost impossible to know how hard the situation is and how it can take a toll on your family. I had a client who killed himself after losing everything, it was just too much for him. He had a wife and family but could not overcome the stigma of bankruptcy and failing to provide for his family. Our neighbors walked away from everything when their electric bill topped $600 a month, it was more than their mortgage. At that time electricity in CA was quite expensive and their pumps ran on electricity - no pumps, no water, no crops, no animals -- no money coming in. They tried to work through it but $600 a month back then was a lot of money every month. We knew many people, good people who paid their bills, who through no fault of their own found themselves unable to stay on top. Banks were notorious for preferring to foreclose rather than work with people. I was the pres of the CofC at that time and one of our members, the manager of my own bank, told me if they lowered the interest or reduced the payments, it was just a loss to them, and about half the people still couldn't make it. By foreclosing they could at least use the tax writeoff.
We had an acquaintance who was a realtor. When their business went under they simply stopped making their $3000 mortgage payment. She said there was no way they could make it and it would take at least 6 months for the company to work through a foreclosure and actually evict them, and by that time they would have $18000 cash to start over with. Another neighbor simply quit paying all their bills. Said if they lost their house, which was going to happen, their credit was ruined anyway so they were stockpiling everything they could before that happened. One bank manager told me it was common for people to run their credit cards up to the max before they filed for bankruptcy. These are extreme examples, and a lot of people - especially in CA tried to hang on and ended up losing everything anyway.
When the housing boom hit CA in the late 90's and then crashed it was "deja vu, all over again" to quote Yogi Berra. Only this time prices were so inflated you didn't have to have a crystal ball to know the outcome. My kids got caught because if you needed to buy a home you had to pay the going price. One, who refinanced when money was flowing, now says he owes more than he could ever sell it for. Fortunately, they like it and it will be a good home till their kids are grown. Not everyone is so fortunate with a secure job. My only point is, it isn't always black or white and it isn't always the low-lifes who are forced into these situations.
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