> even if they could afford to continue payment, it
> makes sense just to let it slide into foreclosure and start over.
I'd say it almost never "makes sense" to walk away from a mortgage. You may find yourself forced to do it, but choosing it has deep repercussions in the US; it should not be taken lightly. In the example of someone who bought a $300k no-money-down house in Merced two years ago and sees a 50% haircut today, the impact of walking away is not just a huge ding on your credit report, but also a $30-50k tax bill, depending on your situation. That's not a "higher-than-seems-worth-it" payment, that's a one-time charge due April 15th.
I'd say if you can't afford a $300k mortgage, you sure can't afford a $50k tax bill.
/jordan