An additional factor in the mix since my original post is that mortgage rates have dropped dramatically in the past month. If you have any equity in your home, you will be able to refi under 4% within a few months. If you're underwater, you can obviously stop paying altogether and default, then come back into the market and buy the same house cheaper at a much lower mortgage rate. Because there will be absolutely no stigma associated with default when it is clearly the rational option. Or do we really think the banks are going to pass up the chance to lend very cheap money on very cheap houses to 20% of the working population? Not if the Fed can help it.