At the end of 2009, almost 40 percent of California homeowners were underwater with their home loans, and 20 percent had negative equity of 25 percent or more.

A recent article at examined the pros and cons of strategic default, or walking away from mortgage debt.

First, the cons:

Foreclosures constitute a loan default and that can crash a credit report and credit score for up to seven years.

Also, there is a potential that certain jobs tied to checking a consumer’s credit report (say, for security clearance) will become elusive. Financial services like insurance can become more expensive. Most credit, especially cheap credit will disappear for the duration of the black mark.

Perhaps only a few years will pass before creditors return with new offers, even if your credit report is still scarred by the foreclosure. However, your credit score will remain low and you’ll pay through the nose for any credit you can get.

Now the pros, according to Robert Aldana, a real estate agent with Intero Real Estate Services in San Jose:

“Too many people get caught up in the moral dilemma. You need to look out for your family and what best for you and them. Lenders do the same and will take your home if it makes sense to them regardless of how many kids you have,” Aldana said.

Aldana has another perspective.

“If you owe $600,000 on a property that is worth $300,000, with an average appreciation rate of 3 percent per year, it would take you 13.25 years just to recoup the loss and break even. That means that for the next 13.25 years, you are paying rent on your home because you are not making any money, you are barely breaking even. And probably not paying a cheap rent either,” Aldana says.

Aldana adds, “If the lender gave you a loan mod with a 3.5 percent fixed rate payment for that loan of $600,000, your payment would be approximately $2,694. Add taxes and insurance and your total payment is somewhere around $3,500 which is about $1,500 more than what you would be paying for rent on a similar home. That’s an extra $90,000 in 5 years or $180,000 in 10 years of extra payment versus rent. And that’s supposed to be OK as long as you get to say that you are a homeowner?”

I know what side I’m on…or did my walking shoes give me away?

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