Self-selected loan modification

The New York Times reports today that more and more Americans are taking loan modification into their own hands by not paying their mortgages. Money previously sent to the loan servicer is now diverted to other things, both essentials and not-so-essentials, and homeowners take advantage of the slowness of the foreclosure process to gain a year or more of rent-free living. Economically, this makes a lot of sense for the debtor: in many cases they owe more than double the fair market value of the home so there's little hope that the property's value will rebound sufficiently to allow them to sell or refinance. There are still many in this situation who continue to make payments out of a sense of moral obligation, but the folks interviewed in this article express no hesitation about their choice: they acknowledge receiving the money from the loan but feel it was the result of fraud on behalf of the lender, so they see this as a type of self-directed equitable remedy. This tactic has not gained widespread acceptance in Massachusetts, perhaps because in this state, the excess debt left after foreclosure continues to be a liability for the borrower (in many states, home loans are non-recourse, meaning the lender's collection efforts begin and end with the house), but if real estate values remain low and unemployment high, I suspect even in this state, this tactic will be seen more often.