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The right thing for whom?

The $26 billion settlement between state Attorneys General and five big mortgage lenders will help a couple of million people who are underwater and/or behind on their home loans.

But it leaves millions more out in the cold.

Two of them are friends of mine, and neighbors of yours. David and June, who in real life go by different first names, are a married couple in their early 40s, are well-known in the community, have good jobs, pay their bills and feel a moral obligation to honor their contracts and commitments.

Yet they are considering walking away from their home.

It's not easy for David, the son of a banker, to contemplate what he has come to know as "strategic default" on his home loan. But after several years of watching the real estate market collapse around him, and feeling the moral ground shift beneath him, he says he feels like "a sucker and a fool" for continuing to squander his family's financial future in order to pay a mortgage based on an inflated past.

David and June were a few months away from welcoming their first child into the world in the summer of 2007, and looking for their first home of their own after years of renting. The North Bay real estate market at the time was lower than its peak a couple of years before, but still on a very hot streak. And even though a median home price of nearly $600,000 seemed well out of their range, the couple felt like their chance for home ownership was slipping away as they watched house after house they were interested in sell for more than the asking price.

"There was fierce competition for every house we looked at," David said. "We would make an offer and there would be several others making bids. In one case, there were 15 or 16 others."

After losing out on several homes, they found an older three-bedroom house in a middle-class neighborhood, a little more than 1,000 square feet. It was listed at $539,000. They offered $536,000. This time, their offer was accepted.

They put down $60,000 and signed papers on a first and second mortgage with a combined payment of a little more than $2,900 a month, which covered interest only.

"We could just afford it. Not comfortably, but we felt like if we waited any longer home ownership would be out of our reach," David said.

They soon began to realize the fallacy of that belief. Home prices had already begun to back off their peak in 2007, and by 2008 they were in free-fall. In many communities, real estate values have dropped by half in the past six years. The house next door to David and June went into foreclosure and recently sold for $225,000 (it was purchased by a builder who spent several weeks remodeling and now has it listed for $358,000).

In addition to watching the value of their home evaporate, David and June saw their own expenses increase. Their son was born shortly after they moved in; a daughter arrived in 2010. The economy worked them from both ends, with inflation adding costs and the recession cutting their paychecks. David's company imposed pay cuts; June lost income after a job transfer that reduced her commute.

On their block, in their town, in California and around the nation, houses went into foreclosure as people just like David and June decided they couldn't afford to pay their mortgages. The more people defaulted, the worse the economy got. The more homes went into foreclosure, the less their own home was worth. They wondered: Where does the spiral end?

"It's been a process of coming to realize just how bad our situation is," David said. "We're way under water. We're never going to see that $60,000 (down payment) again, and we're paying $35,000 a year in interest on a loan we'll never be able to pay off."

It's been many months since someone first mentioned the phrase "strategic default" to David and June. They have resisted, for a number of reasons. Pride. Honor. Responsibility. Loyalty to their neighbors. Fear of the stigma of bad credit. But they are starting to come to the realization that "doing the right thing" is a very difficult thing to define in their position.

"I've cut my contributions to my 401(k) so we can keep up the mortgage payments," he said. "I'm giving up my family's future security to keep up payments on a terrible investment. Is that right?

"Meanwhile, these banks gamed the system, bundled bad mortgages, got bailed out. They're not hurting, but we're supposed to suffer forever because that's the right thing to do?"

He has asked his lender about refinancing; interest rates today are much lower than the 7 percent he is paying on his first and 7.79 percent he pays on his second. But while a refinancing could significantly reduce the monthly cost of their home, David and June's lender told them refinancing is not possible because the home is not worth what they owe on it.

That's a Catch-22 faced by millions of homeowners.

David and June also are working on the paperwork required to request a modification of their loan – an arrangement in which the lender reduces the amount owed in order to help the borrower avoid default and foreclosure. But their primary lender is not included in the recent settlement that provides money for refinancing, modifications and other relief. And David is not optimistic about getting help from any bank if the institution is not forced to provide it.

"We can afford this, for now," David said. "The question has become: In the long term, does it lead us to financial ruin?"

The conversation at David and June's dinner table is one that plays out every evening in homes across the land. What's the right thing to do? And for whom do you do it?

Your family, or the bank?

Chris Coursey's blog offers a community commentary and forum, from issues of the day to the ingredients of life in Sonoma County.