You'd have to have spent the last year under a rock not to know that walking away from mortgages is becoming a big phenomenon in the US. There are moral judgments being thrown all over the place, there is name-calling directed at lenders and homeowners, and there are politicians wringing their hands and tuning up their sound bites. What there isn't much of is objective advice.

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  • The Home Affordable Refinance Program (HARP) has been announced by President Obama, saving homeowners thousands over the lifetime of their mortgage
  • Eligible homeowners may be able to refinance, regardless of how much they owe on their home

When does walking away make sense?

There are some for whom walking away feels wrong under any circumstances. A mortgage is a contract, foreclosure is shameful, a house is more than just shelter... and if you feel that way there is no reason for you to read any further. You know what you will do.

For many, though, it's not cut and dried.

You may really love your house. Your kids' goldfish are buried in a little cemetery out back. You don't want to make your neighbors mad. Or you'd do just about anything to avoid having bad credit. However, when honoring your obligation to a mortgage lender means pulling your child out of college or canceling your medical insurance or laying off an employee, the issue gets clouded.

If you meet all of the following criteria, you should probably consider cutting your losses and walking away:

* You cannot afford your mortgage without cutting essentials like medical care, education, or safety

* The cost of owning your home is significantly greater than the cost of renting in your area, or you need to move

* You cannot sell your home for what you owe or cover the mortgage by renting it out

* Your lender has declined to help you with a mortgage modification or forbearance

If you cannot afford your mortgage due to a documentable hardship, your first line of defense against foreclosure is requesting help from your lender under HAMP or other programs. If renting another home would cost as much as owning your home, giving it back won't help you. You might be better off adding roommates to share expenses and trying to ride out the hard times, or rent out your home and find a cheaper place until things improve.

Other homeowners have fewer qualms about dumping a bad residential investment. It's a business decision, nothing personal. But you still want to make a good business decision. Here is what makes walking away more viable:

1. You are more than 25% underwater on your mortgage

2. You live in a non-recourse state, where your lender cannot sue you for any unpaid balance following a foreclosure sale

3. You need to move or can rent for much less than you are paying to own your property

4. Your property is a rental, is underwater, and generates negative cash flow

Then there are people who should absolutely not walk away. That's the case when:

1. Your business or employment requires a good credit rating. If mortgage credit problems will kill your business' lines of credit, or keep you from getting a job in your field, don't risk a strategic default.

2. If you live in a recourse state and have assets your lender could be awarded to cover your mortgage arrearages

3. You can afford your mortgage payment and are less than 25% under water. In a few years your home will be in the black, but a mortgage foreclosure could still be costing you in the form of higher interest rates on every debt you have.

The decision to keep or walk away from a mortgage is highly individual, depending on your attachment to your home, your reputation, your credit rating, and your money.