HousingPANIC Stupid Question of the Day

Is it immoral to walk away from your depreciating debt-trap and toxic mortgage? And your car? And your credit cards? And every loan you've ever taken out?

Because millions are doing it, and millions more are thinking about it...

Thinking of getting out of that option-arm, no-down, no-doc, teaser rate debt trap? Think again. Checkmate.

Don't worry, the mortgage clerk and real estate clerk told you when you were signing your name on the dotted line. Don't worry - you can always refinance again in a couple of years when the rate resets, and heck, by that point you'll have built up so much equity that you can take that money out and go on a cruise!

Not.

Things change my friends. The subprime implosion means liquidity dries up hasta pronto, and easy-credit standards go away. In addition, these desperate homedebtor-hamsters are looking at massive pre-payment penalties (hey, nobody told them about those!) if they try to escape.

Oh, boy, is this ending ugly. Welcome to option-ARM jail, homedebtors.

With rates on many homeowners' adjustable-rate mortgages rising, some who would like to refinance into a new loan are finding they can't.

In some cases, that is because their loan carries a prepayment penalty, which would force them to come up with thousands of dollars if they refinance in the first few years. Such penalties are common with so-called option adjustable-rate mortgages, which typically carry a low teaser rate that rises sharply after an introductory period.

Other borrowers are getting caught short by a changing housing market -- one in which home prices have flattened and lenders are beginning to tighten their standards after a long period of making mortgages easier and easier to get. The challenges are greatest for homeowners whose credit has declined since they took out their last loan and for those who have little if any equity. Some of these borrowers are still able to refinance but are finding it more costly than they expected.

These new challenges come at a time when many borrowers who took out adjustable-rate mortgages are facing higher payments. There are about $1.1 trillion to $1.5 trillion in ARMs that will face rate increases this year, according to the Mortgage Bankers Association. The MBA expects borrowers to refinance as much as $700 billion of those mortgages.