updated 12/4/2009 3:16:55 PM ET 2009-12-04T20:16:55

Stop paying your mortgage.

That's the underlying message from a University of Arizona law professor, whose new paper is hitting a nerve as the nation's housing crisis enters its fourth year.

Brent White denies advocating walking away from a mortgage that is bigger than the value of a home. Nonetheless, he lays out a case of how it can be done, and his suggestions have gone viral, popping up online, in newspapers and on television.

White is hardly first to talk about the idea of walking away from a mortgage that is bigger than the value of a home. Nonetheless, his suggestions have gone viral and are popping up online, in newspapers and on television.

It's a move that can save some people money, but at the expense of wrecking their credit.

The topic is central to what's crippling the housing market: About one in four homeowners, or 10.7 million Americans, are considered underwater, meaning their mortgage exceeds their home value, according to real-estate information company First American CoreLogic.

In the markets hardest hit by the nation's housing bust — Florida, Arizona, California, Michigan and Nevada — the share of homeowners who are underwater is 40 percent.

"Millions of Americans would be better off financially if they did walk away," says White, who authored the paper "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."

What White is saying goes against everything that we've been taught about contracts. If you make a mortgage commitment, most people think you have a responsibility to pay.

On top of that, White suggests those who decide walk away should consider getting a new car or house before they default on their mortgage, which will constrain their credit.

National, personal financial risks
Imagine if everyone who is underwater walked away. It could cause economic havoc. Home prices would plunge even more. Banks would have even more bad loans on their books, which would lead them to make fewer loans to consumers and businesses.

There are personal financial risks, too. A foreclosure shows up on an individual's credit report for seven years, which will make it hard to get any loans during that time, according to John Ulzheimer, president of consumer education at Credit.com.

People who go into foreclosure but otherwise have good credit might escape in less time if they continue to pay their other bills on time. There is no magic number for how long that could take.

Mortgage lender Fannie Mae won't back another loan for five years for someone who was involved in a foreclosure, except when the default occurred because of an extreme circumstance like a medical event or unemployment.

"Walking away undermines the basis tenets of mortgage lending," said Brian Faith, a spokesman for the government-controlled Fannie Mae.

Some see a double standard
Despite all that, White's views resonate because he highlights a double standard in the home lending industry.

Banks and other lenders doled out mortgages during the boom, often without demanding down payments or checking to see if borrowers had enough income. After the housing crash, many of these same lenders took billions in taxpayer money, yet now are slow to modify troubled mortgages.

The government's efforts to fix this mess haven't worked. The Obama administration acknowledged on Monday that it has struggled to get lenders to permanently modify interest rates on home loans.

The government's plan now is to shame lenders into to modify mortgages. The latest strategy: Publish a list of those companies participating in the government $75 billion effort to stem foreclosures that are lagging on the modifications.

"Wall Street gets to maximize profits and minimize losses irrespective of concerns about morality, while Main Street is told to keep their promises," White says.

Housing sector rebound could take years
White knows what he's talking about. He is a scholar of behavioral economics and the law — two areas at the heart of the housing crisis. He believes homeowners worry about the shame involved with foreclosure and have an exaggerated anxiety over what a foreclosure will mean for a person going through it.

For those living in the most distressed markets, it could take years for home values to rebound to peak levels — if they ever do. Those who bought high and put relatively little cash down might be able to save money by walking away and renting, White says.

White estimates that someone who bought a home in Miami for $355,400 at the market's peak may now have a home worth $198,000. If the homeowner put 5 percent down at the time of purchase, he currently owes $132,000 more to the lender than his home is worth.

If that homeowner walks away, he wouldn't have to pay mortgage interest, mortgage insurance, taxes or homeowners' insurance. White estimates that homeowner would save $116,000 by giving up on his mortgage and renting a comparable home.

Easing the terms of an existing mortgage can keep a borrower in his home, but the banks have little incentive to do so. Now the government is trying to shame banks into action, but that's hardly enough. Congress considered a bill that would have let bankruptcy judges rewrite mortgages, but that legislation died last spring.

When abandoning a home sounds attractive, it's time for better choices.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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