As housing prices fell over the past year, more and more homeowners are in the uncomfortable position of owing more than their homes are worth -- in some cases, far more. Being underwater on their mortgages has led many to ask a simple question: Wouldn't it make more sense to let the bank foreclose than to try to find money to make payments every month?

A growing number of people are answering yes. You can find many reports of homeowners sending their keys back to their mortgage lenders when they can't -- or don't want to -- keep up the payments. Others continue to live in their homes without paying their mortgage, challenging their lenders to take action.

A no-win situation
For desperate homeowners, giving up on your mortgage might seem to be the lesser of two evils. Defaulting on your mortgage shatters your credit rating -- but so does spending every penny you have to save your house if it means being late or defaulting on other debt, such as credit cards or utility bills.

Predictably, lenders are not happy about this trend. Both Wachovia (NYSE: WB) and Bank of America (NYSE: BAC) mentioned the growing problem in recent conference calls, noting the reversal in the mind-set of borrowers. Homeowners used to pay their mortgages first and sacrifice other obligations to make payments. But now lenders see borrowers with otherwise good credit decide to stop paying their mortgages. And the costs of foreclosure -- especially in a down market where lenders are unlikely to recover 100% of their loan amount -- make it a last resort.

In addition, homeowners have a clear political advantage, at least for now. The recently agreed-to foreclosure moratorium has several banks, including Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM), and Wells Fargo (NYSE: WFC), voluntarily agreeing (after pressure from the Treasury Department) to give borrowers 30 extra days before foreclosing. Some have discussed freezing rates on subprime mortgages at low levels for a period of years. Also, a tax-law change now means that those who have mortgage debt reduced won't have to pay tax on the forgiven debt. That's a big change from prior law.

Not for the meek
Still, giving up on your mortgage obligation isn't something to do lightly. Before you seriously consider walking away, the first thing you need to learn is how your mortgage contract and state law define your rights.

Many media stories focus on California, where state law makes it extremely difficult for mortgage lenders to collect additional money from you after they foreclose. But other states let lenders come after you for the difference, making walking away not nearly as attractive an option.

For most borrowers, the better course of action is to try to negotiate more favorable loan terms with your lender. The pressure lenders are under to resolve the crisis gives you an edge: You'll likely get better terms than you might expect. Your lender doesn't want to go through foreclosure any more than you do. The difference now is that lenders are the ones being blamed for the problem, which gives savvy borrowers an opportunity to take advantage of the situation.

Until housing prices start rising again, however, some people will walk away from their mortgage obligations. That might be enough to make lenders start asking for sizable down payments again -- and that might not be such a bad idea.

Read these articles and learn more about the state of housing in the U.S.:

Our Home Center gives you tips on understanding every aspect of the homebuying process, from starting to shop to closing the deal.

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Fool contributor Dan Caplinger was early to the downturn. He doesn't own shares of any companies mentioned in this article. The Fool's disclosure policy never stops working for you.