I'm not going to delve into the questions of whether we're making people responsible (enough) for their debts in this country.

But I will point out that several mortgage lenders realized too late that the bankruptcy law changes in 2005 that made it much, much more painful to walk away from "unsecured consumer debt" (in particular, credit card debt) resulted in a situation where many mortgage borrowers were paying their credit cards first, and then paying their mortgage with whatever was left over.

So as ARM's started to reset in late 2006 and the first defaults started coming in by early 2007, (ie, last March, when the first little bits of cow pie salad started to hit the fan), lenders started studying who was defaulting, on what type of loan and why.

First big surprise they found: many of the people defaulting were completely current on their credit card debt. The mortgage note was paid second (or last) after unsecured consumer debt.

Second big surprise was that the #1 reason for defaults was a income disruption - ie, someone lost their job, and even if they got a new job pretty quickly, the borrowers had insufficient reserves to cover even a couple month's bills. The ARM reset wasn't the primary reason. The borrowers were leveraged to the max, ie, living paycheck->payment. This might have changed since then, but it was a pretty big gap between the "lost job" and "ARM reset" reasons in the polling.

The reason why people were paying off their credit cards first, mortgage last? They knew the consequences of the bankruptcy law changes of 2005. And coming out of that change in the law, the mortgage lenders are less of a threat to a person's future FICO score than defaulting on your mortgage.

The banking industry has received a really, really rude wake-up call as a result of the law changes in 2005. Formerly, (and I'm sure everyone from 40 on up in age) remembers being told (preached, actually) to:

a) always pay your mortgage first!

b) it is better to be late on your credit cards and consumer credit than your mortgage.

c) don't default on your mortgage.

The research showed that the most recent generation of mortgage borrowers never heard this - to them, a mortgage is just another bill coming in the mail, and possibly less important than the Visa or MasterCard bill. Mortgage bankers were "shocked" at these findings.