Pretending to be in Distress?

My family as well as several other families in our neighborhood now owe more on our mortgages than our homes are worth. At a recent party I heard some of our friends talking about the new federal mortgage-relief programs and how they were planning to get their monthly payments reduced. No one has lost a job, and I don't see anyone making cutbacks in lifestyle. But these neighbors plan to go into arrears on their payments -- which jumped when their mortgage rates adjusted upward -- and make a case for hardship.

It seems to me that all of us simply bought more house than we should have, at the top of a hot market, or perhaps we borrowed too much against our home equity for living expenses. That's our bad luck or bad judgment, not anyone else's fault. My husband and I are going to reduce our spending and wait this out. Our friends say we are chumps not to get on board the gravy train. What do you think?

I agree with you that it would be unethical to use public funds from the mortgage-relief programs in this situation, and I commend you for your self-awareness and integrity.

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These programs are designed for the many true victims of this housing crisis -- for example, unsophisticated home buyers who were duped by shady lenders and brokers into taking bigger loans than they could afford, and folks who bought suitably priced houses and were managing just fine until they were laid off or suffered a medical emergency. There are countless numbers of these homeowners, and they need help to avoid foreclosure.

The government is spending a finite amount of money on this project. What your neighbors are attempting to do by gaming the system is divert public funds from those borrowers who truly cannot meet their mortgage obligations and are truly in need. I find such behavior very offensive.It will be difficult for the administrators of these programs to distinguish real hardship from chiseling, but I hope they can.

Have a money-and-ethics question you'd like answered in this column? Write to editor in chief Knight Kiplinger at ethics@kiplinger.com.