Another dispatch from the front lines of the class war informs us that the rich are more ruthless than the rest of us. And in other news, dog bites man:

LOS ALTOS, Calif. — No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

The rich can also afford lawyers. In some states, despite your mortgage being a secured debt, the mortgage holder can still come after you. So if you're going to walk away, by all means, do so. But don't do it until you check your legal status.

I've been saying this all along to people: The only real obstacles are in your head. There's no reason in the world to keep throwing good money after bad.

And he's right. Banks won't negotiate with borrowers until more people start to do this:

Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don't feel guilty about it. Don't think you're doing something morally wrong.

That's the incendiary core message of a new academic paper by Brent T. White, a University of Arizona law school professor, titled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."

White argues that far more of the estimated 15 million American homeowners who are underwater on their mortgages should stiff their lenders and take a hike.

Doing so, he suggests, could save some of them hundreds of thousands of dollars that they "have no reasonable prospect of recouping" in the years ahead. Plus the penalties are nowhere near as painful or long-lasting as they might assume.

"Homeowners should be walking away in droves," according to White. "But they aren't. And it's not because the financial costs of foreclosure outweigh the benefits." Sure, credit scores get whacked when you walk away, he acknowledges. But as long as you stay current with other creditors, "one can have a good credit rating again - meaning above 660 - within two years after a foreclosure."

Better yet, you can default "strategically": buy all the major items you'll need for the next couple of years - a new car, even a new house - just before you pull the plug on your current mortgage lender.

"Most individuals should be able to plan in advance for a few years of limited credit," says White, with minimal disruptions to their lifestyles.

What kind of law school professorial advice is this? Aren't mortgages legal contracts? In an interview, White said that in so-called anti-deficiency states such as Arizona and California, mortgage lenders have limited or no legal rights to pursue defaulting homeowners' assets beyond the house itself. In other states, lenders may decide it is not worth the legal expense to pursue walkaways, or consumers may be able to find flaws in the mortgage documents, disclosures or underwriting to challenge the original contract.

The main point, he says, is that too often people's "emotions" get in the way of clear financial thinking about mortgages, turning them into what he calls "woodheads" - "individuals who choose not to act in their own self-interest." Most owners are too worried about feelings of shame and embarrassment following a foreclosure, and ignore the powerful financial reasons for doing so.

Buttressing these emotions is a system that White labels "the social control of the housing crisis" - pressures and messages continually sent to consumers by the "social control agents," namely banks, government and the media. The mantra these agents - all the way up to President Obama - pound into owners' heads, says White, is that "voluntarily defaulting on a mortgage is immoral."

Yet there is an inherent imbalance in the borrower-lender relationship which makes this morality message unfair to consumers: Banks set the rules during the housing boom, handing out home loans with no down payments, no income checks, and inflated appraisals. Now that property values have dropped 20 percent to 50 percent in many areas, banks have been slow to modify troubled mortgages and reluctant to reduce principal debts.

Only when homeowners cut through the emotional fog and default strategically in large numbers, White argues, will this inequitable situation be seriously addressed.

Home equity loans are, after all, a major part of homeowner debt. The Obama proposal would allow homeowners to wipe out that debt in bankruptcy court, allowing homeowners to keep their houses. And of course the credit card industry (those usurious scoundrels!) is screaming.

Gee, that reminds me. Maybe it would be a good time to repeal all those changes in the bankruptcy laws the credit card industry won in the Bush era, too:

A key provision in President Obama's $75 billion foreclosure prevention plan would allow bankruptcy judges to modify home mortgages — a measure supported by bankruptcy attorneys and consumer groups but opposed by lenders.

The American Bankers Association has argued that allowing bankruptcy judges to change the terms of mortgages will increase the risks of mortgage lending at a time the market is already struggling.

The industry isn't unanimous in its opposition. Last month, Sen. Dick Durbin, D-Ill., announced that an agreement had been reached with Citigroup on legislation for bankruptcy mortgage modification.

"If enacted, this legislation would represent an important step forward," Vikram Pandit, chief executive officer at Citigroup, said in a letter to Durbin and three other senators. "Given today's exceptional economic environment, we support its swift passage."

The mortgage restructuring plan, called a mortgage cram-down, would give Chapter 13 bankruptcy judges the power to change loans for a primary residence.

Judges can already modify mortgages for second homes and commercial buildings.

"That's the rule for investors who own two, three and four homes," Obama said Wednesday. "It should be the rule for ordinary homeowners, too, as an alternative to foreclosure."

The change in the law would empower judges to lower interest rates, extend the repayment period, and change the principal amount owed on the mortgage to what is determined as the home's fair market value.

The banking and credit card industry say the proposal is too broad, because it could apply to any borrower, including those who aren't having trouble paying their mortgages.

To protect themselves, lenders want to be allowed to veto any alteration in a home mortgage, says Michael Calhoun, president of the Center for Responsible Lending, a consumer advocacy group.

Don't you love that? "Center for Responsible Lending." Right! Seducing people who are already on the ropes with credit cards so you can charge usurious rates is "responsible lending". But I digress: As it turns out, the Center for Responsible Lending is a group that fights predatory lending. I apologize for the mistake; they sounded like industry advocates from that isolated quote. My bad.

Bankruptcy attorneys argue that such a veto isn't necessary because under the proposed change, the homeowner and the lender would be able to present their case.

Each side could have an appraiser, and the judge would hear the testimony of both sides, including information about the borrower's income and expenses, says Joe Lee, bankruptcy judge for the Eastern District of Kentucky.

Many homeowners have two mortgages because they have taken out a home-equity loan to pay off their credit card debt.

Under the plan, the bankruptcy filing could wipe out the home-equity loan, enabling the family to keep their home, Lee says.

WASHINGTON — President Barack Obama's new effort to use Wall Street rescue money to halt the soaring rate of mortgage foreclosures nationwide encourages refinancing of homes that are now worth less than their mortgages and provides incentives for lenders to lower the debt load on struggling homeowners. Like the failed efforts under the Bush administration, however, Obama's $275 billion plan — announced on Wednesday — doesn't compel banks and other lenders to modify troubled mortgages. Instead, it provides a menu of incentives that may or may not prove sufficient in reaching the goal of helping 9 million homeowners. "It's a bold plan and that's encouraging. But at this moment, we don't have enough detail, and unfortunately with the foreclosure mitigation plans, the devil is in the details," said Elizabeth Warren, a Harvard University law professor who heads the Congressional Oversight Panel charged with monitoring use of taxpayer bailout funds. "There have been big headlines in the past and the details never caught up with the early promises." [...] The third and trickiest leg of the Obama plan involves using $75 billion in Wall Street rescue funds for a shared effort to help as many as 4 million distressed borrowers who are behind on their payments or facing foreclosure. Obama wants lenders to lower interest rates and extend the length of loans to make monthly mortgage payments no more than 38 percent of borrowers' after-tax income. Then, the government will step in and split the cost, dollar for dollar, to buy down those monthly payments until they account for no more than 31 percent of borrowers' after-tax income. Obama committed to publishing standardized guidelines for mortgage modifications and additional detail by March 4 — an aggressive timetable. "This sounds good but I'd have to see more," said Harlan Platt, a finance professor at Northeastern University in Boston. Platt has proposed an even more ambitious plan that would involve more aggressive write downs for banks in exchange for a greater percentage of gains when home prices rebound. The third leg of Obama's plan wouldn't be a permanent fix, but a five-year subsidy designed to stem the rising tide of foreclosures. "It recognizes that we've got to stop foreclosures, not just for families about to lose their home but anybody who owns a home" and is seeing home price declines, said Ellen Harnick, the senior policy counsel for the Center for Responsible Lending, an advocacy group in Durham, N.C. Consumer advocates applauded Obama's plan. The response from lenders — which would receive $1,000 payments to refinance mortgages, a $10 billion insurance program and other financial incentives — was lukewarm at best. Republicans sided with banks. "Among the concerns we have is that it seems to offer little help to borrowers whose loan exceeds their property value by more than 5 percent. This will limit the plan's success in some of the hardest hit areas in California, Florida, Nevada and Arizona, as well as some areas on the East Coast," said John Courson, the president of the Mortgage Bankers Association, in a statement. Obama's answer to that complaint riles lenders. If lenders aren't willing to write down some of those so-called underwater mortgages, he said Wednesday, bankruptcy courts may soon be able to do so. This is called a mortgage cram-down. Obama supported congressional efforts to authorize bankruptcy judges to write off the difference between what a borrower owes and the home's value.

I know several couples right now who would break up in a minute if they had any equity left:

Chalk up another victim for the crashing real estate market: the easy divorce.

With nearly one in six homes worth less than the mortgage owed on it, according to Moody’s Economy.com, divorce lawyers and financial advisers around the country say the logistics of divorce have been turned around. “We used to fight about who gets to keep the house,” said Gary Nickelson, president of the American Academy of Matrimonial Lawyers. “Now we fight about who gets stuck with the dead cow.”

As a result, divorce has become more complicated and often more expensive, with lower prospects for money on the other side. Some divorce lawyers say that business has slowed or that clients are deciding to stay together because there are no assets left to help them start over.

“There’s an old joke,” said Randall M. Kessler, Ms. Needle’s lawyer. “Why is a divorce so expensive? Because it’s worth it. Now it better really be worth it.”

In a normal economy, couples typically build equity in their homes, then divide that equity in a divorce, either after selling the house or with one partner buying out the other’s share. But after the recent boom-and-bust cycle, more couples own houses that neither spouse can afford to maintain, and that they cannot sell for what they owe. For couples already under stress, the family home has become a toxic asset.

I think anyone who was paying attention knew the southern Cal housing market was unsustainable in the long run, but that doesn't make it any easier to watch it crash and burn:

Monday, Dec. 22, 2008 | Nearly 30 percent of homes in San Diego County with a mortgage are worth less than their owners owe on their mortgage, according to new data.

The 29.4 percent share of county homes "underwater" or "upside-down" compares to 27.4 percent for the state and 18.3 percent for the nation. The San Diego County data was prepared for voiceofsandiego.org by First American CoreLogic, and was the only county-level data of its kind released for the quarter ending Sept. 30.

[...] "The people who did the right thing, bought within their means, 30-year-fixed, saved up a down payment -- good for them," Goldman said. "They're still underwater."

[...] "If you sell right now you're by definition either distressed or stupid," London said. Fred Eckert, title rep at Chicago Title, tried to find the silver lining for the underwater statistic: "On the plus side -- 70 percent are still OK," he said.

I think home prices may fall by even more than 30%. We're hitting a period of deflation, which will drive wages (and employment) even lower and the value of houses may drop even more:

As painful as the decline has been, history suggests home values still may have a long way to drop and may take decades to return to the heights of 2½ years ago.

"We will never see these prices again in our lifetime, when you adjust for inflation," says Peter Schiff, president of investment firm Euro Pacific Capital of Darien, Conn. "These were lifetime peaks."

The boom in home prices — fueled by heavily leveraged loans built on low or even no down payments — made it easy to forget that housing values had been remarkably stable for a half-century after World War II, rising at roughly the same pace as income and inflation. Prices soared in most of the country — especially in Arizona, California, Florida and Nevada and metro areas of Washington, D.C., and New York — during a brief period of easy lending, especially from 2002 to 2006. That era's over.

So far, home values nationally have tumbled an average of 19% from their peak. As bad as that is, prices would need to fall as least 17% more to reach their traditional relationship to household income, according to a USA TODAY analysis of home prices since 1950. In that scenario, a $300,000 house in 2006 could be worth about $200,000 when real estate prices hit bottom.