I think you have it exactly right.  People with good incomes who are just a bit underwater on houses in San Francisco or New York should probably stay put.  But people with low incomes who are hundreds of thousands of dollars underwater in the outskirts of Vegas... well, I actually think that for them, paying off the mortgage would be a financial disaster.  It will take up every cent they own for decades, and they will retire broke.  Seven years of bad credit pales in comparison to the severe damage they will do to their financial future by trying to pay off this house.<p>Personally, I think one of the reasons people hang on is that they're too optimistic about a recovery in prices.  I'm sure prices on houses in the vegas desert will eventually start to rise again, but from $190k to 550K?  Nope.