Voluntary foreclosure, often referred to as walking away from the mortgage, has been called unethical and ruthless by some people in the financial industry. What the industry does not seem to realize is that most people who have to walk away from the mortgage do not have a choice as they are in severe financial distress.
Given an option, borrowers would almost always like to save their house, but extreme situations require extreme measures.
Voluntary foreclosure is actually not much different from foreclosure by the bank as far as its underlying causes are concerned. If you are not able to pay back the entire mortgage loan, then eventually your property would be foreclosed by the lender anyway. All you are doing by walking away is to stop sinking more money into a mortgage that you cannot afford. You are just bringing an inevitable event forward. In fact, it might just save the lender the expense that it would have incurred to force foreclosure proceedings on you.
If you are among those unlucky people whose value of the house has crashed and is now significantly lower than the mortgage amount, then it might be a good option to take the necessary steps for foreclosing the loan. This is even more important for those who do not have equity in their house, as they will find it to impossible to raise any money using the house as collateral.
Partly, the banks are themselves to be blamed for this situation. They had given mortgage loans without taking the necessary precaution of thoroughly checking the credit worthiness of the borrower. This created the real estate bubble, which eventually burst and led to the current situation.
I don’t think there is anything wrong in foreclosing your mortgage when you are in financial trouble, and it cannot be seen as a breach of contract. In a mortgage contract, the banks have the right to recover the loan by selling your house if you are not able to pay. Since you are not able to pay, you are merely following the terms of your contract by handing over the property to the bank.
Banks need to stop blaming the borrowers and should try to recover as much money as they can by selling the houses. They had taken a business decision by giving you the loan and it simply backfired due to the economic situation.