>> - Maybe you didn't _want_ to declare bankrupcy this year?
>
> CB: Truly. I see what you mean. Although, with a mortgage,
> the lender takes the house as security for the debt, and the
> borrower doesn't owe the money.
I think some of this stuff depends on what state you live in, but there are two big gotchas here:
1) If you default, get foreclosed, and the house is sold, you may owe taxes ... they just passed a law with certain time exclusions to reverse this, but in general, this is true -- debt forgiveness is income
2) You still might be on the hook for some of it; there's a big difference betwen 'non-recourse' loans (where they take the property and you're done) and a 'recourse' loan where you're on the hook for the difference between your loan balance and whaat the house sold for. As an example, you bought a $400k house with nothing down and a $425k loan. You default, they foreclose, and they sell the house at auction for $325k. You still owe them $100k!
> There are some people who got sub-prime loans who aren't defautling.
> So, that's one for point to the credit of the US capitalist housing
> marketeers.
Yes, and this is important: the sub-prime market didn't come about as a way to dupe people with lower credit scores than the primes; it came about because it once you get your risk-management systems in order, you can calculate fairly well what a particular drop in creditworthiness "costs" and make up for it on the cost end.
Also: the loans that are defaulting are typically the teaser-rate ARMs as they reset, not all sub-prime loans (plenty of which are traditional 30-yr fixed).
/jordan