Walk away from your mortgage? Time to get 'ruthless'

NEW YORK (CNNMoney) -- Should you keep paying your mortgage on a home that's dwindling in value?

No way, say an increasing number of underwater homeowners who are voluntarily choosing to "walk away" from their home loans, a practice known as "strategic default."

Jon Maddux, CEO of YouWalkAway.com, reports 10% more clients this year to his company, which advises people how best to handle the walk away process.

Charles Gallagher, a real estate attorney in St. Petersburg, Fla., has also seen an uptick.

And a recent survey by home finance company Fannie Mae found that while only about 27% of homeowners would even consider walking away, that's up from 15% last year.

In an early 2010 report, Morgan Stanley (MS, Fortune 500) researchers said nearly 200,000 defaults in the prior year were voluntary, or roughly 12% of the total. The bank expects to issue updated estimates in coming weeks.

10 dirt cheap housing markets

The profile of a typical strategic defaulter is not what you'd expect, said Peter Ticktin, a Florida-based attorney, whose firm is handling 3,000 foreclosure cases.

"Because they borrowed money and stopped paying their loans, you would think they're deadbeats -- but it's not like that," Ticktin said.

In fact, most are good credit risks with high FICO scores, according to Andrew Jennings, chief analytics officer at Fair Isaac (FICO), the company behind FICO.

Take Jeff Horton, an IT manager in Orlando, Fla.

He stopped making mortgage payments on two homes in October 2009, a condo purchased for $140,000 in 2005, and a house he bought two years later for $265,000. He had occupied the condo until he bought the house, and then rented it out.

"I would have kept up the payments, but the condo was appraised for $54,000 and the house, $135,000," said Horton.

To keep paying off the homes didn't add up. He could rent a nice three-bedroom home in town for about $1,000 a month, less than half what he was paying for his mortgages, even after rental income.

For him and other homeowners, that makes up for the credit-score hit and the fact that you won't be able to get a mortgage for several years.

Before he stopped paying, his credit score was an excellent 750. It dipped as low as 520, but is up to 600 again.

"Strategic default can be a financially sophisticated thing to do," said Mark Fleming, chief economist for CoreLogic, the financial analytics company. "And it makes sense that more financially savvy people do it. They may treat their mortgages like they would their investment portfolios -- in a financially ruthless manner."

Home price 'double-dip'

Sometimes, borrowers have to acquire that ruthlessness.

Helen Sheridan purchased a townhouse condo in 2006 at the height of the boom in San Diego. She paid $630,000 for a place worth $450,000 today.

When the economy tanked, she lost about 30% of her income as a certified public accountant and her mortgage payments, while still doable, became burdensome. With a teenage daughter and son, she was facing college costs.

She had to overcome some conventional thinking about the sanctity of debt repayment to make what she realizes is the correct financial choice.

"I still feel guilty," Sheridan said. "I break out in tears, but I have a family to support."

One factor that pushed her over the edge was that the house needs maintenance and repair.

"People are more educated about the process," said Maddux of YouWalkAway. "They're making more calculated, less emotional, decisions and are less fearful and less concerned about the stigma."

Sheridan is getting help from YouWalkAway and her house will be auctioned off on June 13.

University of Arizona law professor Brent White thinks the past few years of banking scandals have reinforced the view that it's not unethical to walk away.

"There's a sense that the banks don't follow the 'rules,' but somehow the little guy is supposed to -- more and more people are saying 'enough is enough' and walking away," said White, who is also the author of "Underwater Home: What Should You Do If You Owe More on Your Home than It's Worth?"

Some homeowners, however, can't get past the stigma.

Gallagher represents a Florida couple, a dentist and a financial consultant who is well known in the area. They bought a house for $1.4 million during the boom, and considered walking away when it was appraised recently at close to $400,000.

"Ultimately, the couple did not default," said Gallagher. "Given her public profile, she was worried about the backlash. She remains making payments on a deeply underwater mortgage."