By YOUNG MONEY Staff
12 August 2010

A sea change is under way in Americans' debt habits: They are changing how they borrow, how they pay their loans, how they get out of debt and when they default.

It used to be that smaller, revolving credit loans - like credit card debts - were the most likely to go unpaid. Now, it's home equity loans that have the highest rates of default.

The problem, reports the New York Times, is essentially crashing real estate values, which are driving people to walk away from their home equity loans. In 2009, lenders wrote off around $31 billion in home equity loans and lines of credit. So far this year, they've written off about $8 billion of such loans.

The Times reports that creditors are rarely able to get more than 10 cents per dollar when they force borrowers to settle, if they can get anything at all. In especially hard-hit areas like Arizona, where real estate bubbles grew and grew, houses have lost as much as 75 percent of their value.

For borrowers, it makes simple economic sense. Why keep trying to get out of debt when it's likely cheaper - and maybe easier - to just walk away?

"I'm kind of banking on there being too many of us for the lenders to pursue," software engineer Darin Bolton told the Times. "There is strength in numbers."

Bolton walked away from his house and defaulted on his loans last year. He now lives in a rental.

Banks, other lenders and those representing creditors in general say that this trend represents a collapse in public morality and a catastrophic shift in American attitudes towards lending and debt.

"Anything over $15,000 to $20,000 is not collectible," Clark Terry, the chief executive officer of Utah Loan Servicing, said in an interview with the Times. "Americans seem to believe that anything they can get away with is O.K."

ULS buys home equity loans from the lenders on the cheap - never paying over $500, according to the NYT - and tries to collect on them to make a profit.

More and more, though, people feel that the traditional consequences of default - ruined credit, harassing calls and difficulty borrowing more - are inevitable, leading them to simply walk away.