The number of people who have engaged in such strategic defaults more than tripled between 2005 and 2008 — from 5,100 to 17,250, according to a report by Experian-Oliver Wyman, a credit reporting and consulting firm.

Mark Zandi, chief economist for Moody’s Economy.com, said he expects the problem to get worse this year and next. “As people struggle to make ends meet, they will say this just doesn’t make sense” about continuing to make payments, he said.

The trend is being fueled by the large number of underwater mortgages — those where the bank is owed more than what a sale might net a homeowner. Michigan is fourth in the nation in underwater mortgages, with 38.5% of homes — or 532,774 — underwater.

Those who walk away often do so after failing to negotiate a loan modification or a short sale. Sometimes they need to move out of state for a better-paying job, but they can’t sell their house.

“The good, straight people of the world will feel, ‘How can I walk away?’ ” said Southfield real estate attorney John E. Jacobs. But with an economy still struggling, he and other experts said, the stigma of defaulting on a mortgage even if one can still pay is disappearing.

“When things are that bad, your moral compass, and the obligation to make payments that most people feel, has to give,” Jacobs said.

Walking away

Sondra Malone, 35, bought a house in Eastpointe in 2005 with an adjustable-rate mortgage. The $1,200-a-month payment on the house, along with high heating bills, an expensive SUV payment and other family expenses, quickly buried her in debt.

At the same time, the bottom was falling out of the housing market with record foreclosures dragging down home values. Malone was soon underwater on her mortgage. She owed $116,000 on a house she listed for $99,000 in 2007.

After trying to work out a lower payment with her bank, and trying to sell her house, Malone rented a condo in Sterling Heights and walked away from her house in 2007.

“I didn’t know what else to do,” said Malone, a social worker. “I’m embarrassed.”

Malone said she has been through too much to worry about the lender coming after her. Soon after walking away, she had to deal with major health issues. And she lost her mother last year.

“They’d better go after a whole lot of other people,” said Malone, adding that the foreclosure is now on her credit report. “When you have 10,000 or 20,000, what’s one?”

Walking away is a phenomenon becoming more common in Michigan.

It’s a national trend, too, fueled by underwater mortgages, in which people owe more to their lending institution than their house is worth.

More than one out of three properties in the state with a mortgage is underwater. In metro Detroit, 47.4% of properties with a mortgage, or 131,262, were underwater as of December, reports First American CoreLogic, a real estate data firm based in Santa Ana, Calif. Michigan ranks fourth in the nation with 38.5% of properties — or 532,774 — with a mortgage underwater.

For some, there’s no exit

If you’re staying put and can afford your mortgage, an underwater mortgage might not be a problem. But it’s trapping those who want to move for a new job, have lost income or want to downsize.

One Birmingham homeowner has made payments on his underwater mortgage despite a 40% pay cut. He has eliminated dining out and travel. He raided his 13-year-old son’s college fund to stay afloat.

The man, who requested anonymity, now has a job offer in Colorado that he can’t take. Since he works in financial services, he can’t default on his $470,000 mortgage on a house now worth $220,000.

“I’m not abandoning my house,” he said. “I can’t leave for another job, and no one will buy it for what I owe.”

As strategic defaults rise, so do foreclosures and the number of vacant homes, causing property values to fall further. That in turn is leading many communities to slash services and lay off employees to make up for lower tax bases.

“There is no easy way to deal with it,” said Warren Mayor Jim Fouts.

Warren, which is proposing a 20% pay cut for union workers, saw home prices in the metro area last year fall 9.8%, according to Real Estate One data.

The cost could grow

If the walkaway problem continues to grow, it could be calculated into the formulas that set mortgage rates.

“If it becomes a widespread problem, I think we can all expect to pay the price of higher mortgages in the future with less availability,” said Charles Ed Haldeman Jr., CEO of Freddie Mac, who addressed the Detroit Economic Club in January.

Nationally, strategic defaults were up 128% in 2008 compared with 2007, according to Experian-Oliver Wyman, the credit reporting company and international management consulting firm that partnered on the report. In Michigan, strategic defaults tripled from 2005 to 2008, the latest year available.

One Whitmore Lake homeowner walked away after his bank pulled his business line of credit. He had spent more than 20 years building up his semi-trailer business. Last summer, his bank called in his business line of credit even though he never had missed a payment, something that has happened to many other small business owners in the past year as lenders analyzed these loans. Many had homes as collateral, and with their value falling below what was owed in some cases, the credit lines were called in to be paid in full.

The man’s $400,000 lakefront home was collateral. In the midst of a short sale, he found another house for much less and walked away from the old one. His wife’s name was not on the mortgage, so she was able to get a new mortgage in her name.

The homeowner ended up filing for bankruptcy, in part to avoid his lender coming after him for what was owed on his mortgage. His credit was so damaged, he’s having a tough time starting a new business. His sister has helped him with loans.

“Everything I’ve worked for the last 20 years is gone,” he said. “Now I’m a dirtball. I can’t even go and get a used car.”

The number of underwater mortgages — and of people who decide to walk away — is expected to grow over the next two years as rising foreclosures continue to push down home prices.

While states such as Arizona and Florida saw more dramatic home price declines than Michigan, they have not had the same economic issues. Michigan has lost hundreds of thousands of automotive jobs and struggled to attract new industries. As a result, the state continues to lose population, which dims hope that its housing crisis will end soon.

“There is not a ready supply of buyers waiting to gobble up these properties,” said Rick Sharga, senior vice president of RealtyTrac Inc., a foreclosure Web site.

Exit can make financial sense

A rising chorus has begun to extol the virtues of shedding negative equity by walking away. In a report, University of Arizona law professor Brent T. White said some people are realizing that it can make financial sense to walk away. They no longer feel ashamed.

Albert Hakim, a foreclosure specialist with Re/Max Associates in St. Clair Shores, agrees, saying the stigmas surrounding walking away are evaporating.

“When you are living in a $200,000 house and can buy the same house for $70,000 cash, why not just walk away?” he asked. “If there has ever been a time that you can let your credit go and it’s acceptable, it is now.”

Adding to the problem is that homeowners become frustrated when they reach out to their lenders for loan modifications that don’t materialize. In December, the Obama administration — displeased with the speed at which banks are rewriting at-risk home loans — said banks would face financial sanctions if they didn’t get more modifications done.

Through January, about 116,000 homeowners nationwide had received permanent mortgage modifications. The number with temporary modifications — about 940,000 — represents 28% of the 3.4 million homeowners the Treasury Department estimates are eligible.

Banks have said they’ve been slow to process loan modifications because the process is complicated. The borrower must show some type of hardship to even be considered for a modification. Also, the homeowner must have income. That’s been a problem in high-unemployment states such as Michigan, where many borrowers are disqualified because they don’t have jobs.

One Plymouth resident walked away from his house last year when a loan modification failed to materialize. He and his wife bought the house three years ago for $190,000; it’s now worth $100,000. Then they had a baby, the wife lost her job and the husband went from a salaried information technology employee to a contract one with reduced hours.

“People said we were crazy,” said the man, who requested anonymity.

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March 7, 2010