Defaulting on the American dream

For people struggling to make mortgage payments, is it best to walk away ... and rent?

Have underwater homes sunk the American dream?
(Image credit: Corbis)

A growing number of Americans, owing banks more than their homes are worth, are intentionally defaulting on their mortgages and going back to renting. The number of "strategic defaults" by Americans who can no longer afford their homes is expected to exceed 1 million this year -- four times as many as in 2007. And with a glut of homes on the market, many defaulters are finding they can rent luxurious homes for a fraction of their former mortgage payments. Can we just walk away from the American dream of owning our own home? (Watch a report about borrowers trying to get mortgage relief)

The American Dream isn't dead: No-one's saying home ownership is a bad idea, says Bill Freehling in the Fredericksburg, Va., Freelance Star. Although many people who tried to "tap into the American dream" during the housing boom indeed wound up in a nightmare, people who buy today are in better shape, because prices have come down and interest rates remain low.

"Some dream of mortgage freedom instead of ownership"

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What kind of dream is it anyway? "One of the tragedies of the housing bubble," says Bill McBride in Calculated Risk, was that "it encouraged people to become homeowners before they were really ready and also encouraged them to buy too much home." Many of these people are enjoying life more after defaulting on their mortgages. And many, having learned a lesson, won't buy again soon, if ever.

"The rentership society"

You can't just walk away from this: Some economists are happy people are defaulting, says Tom Lindmark in Seeking Alpha, because they believe the economy will bounce back quicker once people get out of debt. "Sorry, but for every one of these defaulters who walk away someone is getting stuck with the bill." Stop rationalizing -- when people feel free to walk away from their obligations, "you open the door to chaos."

"American Dream 2: Fun with Dick and Jane deleveraging"

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