Why default on a mortgage?

It seems that there are plenty of Americans who are not “too big to fail” — they are just small enough to suffer from the continuing real estate foreclosure crisis. On this morning's broadcast, we introduced you to several homeowners who made the decision to just walk away from their homes and let the banks take them back. These homeowners all had very different reasons that led them to their decisions, but the outcome was the same. They left the very place they loved calling home because they felt they had no choice.

They are not alone. According to Realty Trac, which keeps such data, there were 932,234 foreclosure filings — default notices, scheduled auctions and bank repossessions — in the first three months of this year. That's a 7 percent increase from the previous quarter and a 16 percent increase from a year ago. Realty Trac figures show that one in every 138 U.S. homes had some sort of foreclosure filing launched during the first quarter of the year.

A few weeks ago, we posted a query asking for our viewers to share their stories with us. I'd like to thank everyone who responded and thank those who let me visit with them and talk on the phone. I also tracked down about a dozen more homeowners on the cusp of making the decision to walk away. I came away with a sense that there is a shared feeling of frustration, a level of resignation, guilt and embarrassment, but also that most American of characteristics, a hopefulness that at some point in time things will sort themselves out and get better.

While foreclosure was the common outcome, how these folks got to where they were ran the gamut. As you may have seen in George Lewis's report this morning, the Schreurs made a family business decision based on the stunning loss of value in their home. While they could pay their bills, their brand-new home was already so underwater — by their estimate more than $170,000 — that they decided to abandon ship. In our web extra video , you'll meet Linda Carter. She and her ex-husband lived in their farmhouse in rural Indiana. But when her ex-husband died, she was left to make the payments alone. After months of trying to work something out, she also had to walk away, unable to afford the payments and unable to make a deal with the bank.

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Video: Web only: Why I walked away from my mortgage Most of the people I talked to hadn't yet taken the final step of throwing away the keys. They were still struggling to figure out a way to stay in their home. Joe in Phoenix told me that the combination of losing his job (and more than half the family's income) and the 217 percent drop in the value of his home led him to stop making his mortgage payments. He was still hoping the bank would let him do a short sale before he and his family would have to walk away.

Others talked about medical problems, underwater mortgages, salary cuts and family care-giving issues. It all added up to the unexpected and unwanted loss of the ability to pay the mortgage. No one wanted to default.

While the causes were different, almost everyone complained about their mortgage holders’ unwillingness to work with them. No doubt the banks are as overwhelmed as the homeowners.

The Mortgage Bankers Association, which coincidently sold their headquarters in a short sale after it went underwater, strenuously cautions against defaulting. We talked to their CEO, John Courson, who appears in our segment and in a lengthier version on our web extra video. Courson says he knows the problems firsthand. He noted that he'd survived downturns in both Texas and California and said, “I lived through a point where both homes I owned were worth substantially less during my occupancy,” he said. “But you know, sure enough, over a few years, those values came back.”

Courson pointed to a host of negative consequences of walking away from one’s mortgage: the credit hit and the cost to the rest of the community that continues to pay. And, he adds, in “a number of states, when a borrower just walks away, the lender in fact can come back and will come back to that borrower to try to collect the deficiency. So it’s something that borrowers really need to understand, what the long-term, wide-ranging results and consequences could be of just abandoning their properties.”

On the flip side is a company called You Walk Away. For about $1,000, they counsel their clients on how to abandon a mortgage with as little fallout as possible. The CEO, Chad Ruyle, sees mortgage defaulting as a business transaction mostly devoid of any ethical quandary. From his perspective, the banks bet the homeowners could pay their mortgages and to hedge their bets, charged the mortgage holders interest. If there's any safety in numbers, Ruyle noted that the most common question has to do with the fear that the police would come and haul homeowners out of their homes. He says no.

As for the toll on one's credit score, Ruyle says “it does ding their credit, that the foreclosure will be there for years to come. But these people, most of them that make this decision don’t care because they’re not in a position to go out and buy a home in the near future anyway, so they are willing to take that credit hit and move on with their life and start over.”

Perhaps there is some solace in that old adage that home is where the heart is, as is the experience of the Schreurs, who walked away from the home that had lost so much value. Seeing their daughter busy coloring in the kitchen of their new rental home, you couldn't help thinking it so.