Yes, but few people still have interest-only loans.

And I think the answer is more complex. Let's think of this like a project costing task.

Put aside, for a moment, the equity I might have already paid into the home, or my interest rate, or whatever. For the sake of argument, let's assume all transaction costs are explicit, that is I will be paying people to move my ass.

Option 1: What is the price of staying in my home RIGHT NOW?

I owe a series of payments, and I can calculate the present value of a series of future payments.

At the end, I'll own an asset. The present value of that asset is the discounted present value of the future selling price plus the transaction costs of selling (realty) and moving at that future date. I don't know what that will be, but if I lived in community where houses were abandoned all around me and prices had plummeted 50%, I might be able to make an *educated guess* at the future selling price.

The difference between those two tells me what I have to gain, or lose at the present time if I stay in my home. Obviously, if I can pay the mortgage today and I believe the market will recover, Option 1 is likely to be a sensible choice.

Option 2: Tear up the mortgage and move out. I now owe a series of future rent payments, and I can calculate the present value of those payments up to the same date I pay off my mortgage. I can add in the transaction costs, and add in a fudge factor for credit score problems or "moral hazard" if I like.

Compare the present values of option 1 and option 2. That's how I make the decision. Of course rents are flexible, I can choose my living conditions and tweak the results of option 2. For option 1, I can only guess at future selling price.

There's an Option 3, to sell the house in the usual way. Higher transaction costs (realty), and if you know for sure that your unpaid principal exceeds the selling price of the home, then it can't possibly be better than Option 2, except in the moral hazard sense.

Also keep in mind that many people will have their hand forced — if their mortgage payment exceeds what they can actually budget per month, then they have little choice but to leave.

As mortgage rates reset, they may find that walking out is the only option.

By the way, the reason this is news (again!), is that the rate resets for Alt-A and Option-Arm loans issued during the boom are starting to mature:

http://dailyreckoning.com/the-second-wave-of-mortgage-defaults/

2011 is going to be an interesting year.