Yesterday I posted on the latest Negative Equity Report from First American Core Logic. In that post, I quoted the report as saying that one of the ramifications of negative equity is that it is:

a major factor in changing homeowners’ default behavior.

That change in behavior could take on many different forms. One of the most alarming is the concept of ‘walking away’. By that I mean the borrower just decides to no longer make mortgage payments whether they have the financial where-with-all to pay or not. We have posted on this before.

In those posts, we followed the evolution of the concept from its beginnings in the blog-o-sphere, to the creation of a web site (www.YouWalkAway.com), to the main street media covering the issue. We then reported on how a law professor at the University of Arizona wrote a paper supporting the idea.

Then something strange happened. Main stream media started to not just report on the concept but instead actually started to support a person’s right to walk away from their mortgage obligation. The New York Times in an article in January said:

“Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property…The borrower isn’t escaping the consequences; he is suffering them.”

A few days later, in their blog, The New York Times went further by giving step-by-step directions on how to walk away.

That brings us to last week. Brett Arends of The Wall Street Journal wrote in Market Watch, which is part of WSJ’s digital network, an article suggesting you may be stupid for not walking away. Here are a few excerpts from that article:

Millions of Americans are now deeply underwater on their mortgage. If you’re among them, you need to stop living in a dream world and give serious thought to walking away from the debt…No, you shouldn’t feel bad about it, and you shouldn’t feel guilty.

Stop trying to chase your lost equity. That money is gone. Don’t think like the gambler who blows more and more cash trying to win back his losses. That’s how a lot of people turn a small loss into a big one.

If you are reluctant to give up on “your” home, realize that it isn’t “yours.” If you are in negative equity, it’s the bank’s home. You’re just renting it. And right now you may be paying way above market rates. You need to be ruthless about your cash flow.

Still, when it comes to the idea of walking away from debts, many people are held back by a sense of morality. They feel it’s wrong to abandon their obligations. They don’t want to be a deadbeat. Your instincts, while honorable, are leading you astray. The economy is fundamentally amoral.

Whether we like it or not, walking away from debts is as American as apple pie.

Wow! The Wall Street Journal is telling people to walk away. I’m not here to say that advice is correct or incorrect. I’m just shocked they are saying it.

What does this mean to you?

If you are hoping that the housing market will recover soon, read the following thoughts from Professor Robert Shiller, founder of the Case Shiller Index and one of the leading experts on housing in this country:

“The market has shown a lot of momentum,” Mr. Shiller said. “What trend are we seeing now? It’s very ambiguous.” Mr. Shiller said that one of his greatest worries about the housing market are so-called strategic defaults, where borrowers who owe more than their homes are worth and can afford their monthly payments choose to default anyway.

Where did I read Mr. Shiller’s remarks? The Wall Street Journal. Two days before the Brent Arends article.