In Britain (and most of the world), all mortgages are "recourse mortgages". That is, the borrower is personally liable for all debts, whether secured or non-secured. Therefore, if a borrower gets into difficulty and their home is repossessed and then sold, if the sale of the property yields less than the loan, the borrower is still liable for the difference, and the courts can attach their future earnings. This is one of the main reasons the UK has a low repossession rate. It makes sense to try to meet your mortgage payments instead of having to pay rent plus repay outstanding debt on your repossessed property. Even strict banks such as Northern Rock only repossessd 0.56% of the loans on their books in 2008 - and their rate was three times that of the other banks.
In the USA though, uniquely in the world, they operate non-recourse mortgages in 27 states, including California and Florida. With a non-recourse mortgage, you only need to return the keys to your home, and you are no longer liable for the debt. While property prices are rising and there is equity in the home, it's rational to continue paying the mortgage. But if your home is "underwater" as the Americans like to call negative equity, and you are struggling with the payments, it is rational to simply return the keys and let the lender deal with the problem. The lender then has to sell the house - but increasing supply of homes for sale into a falling market simply depresses house prices even more, and increases the losses the lenders incur on that property. Hence the reason why US house prices have been falling continuously since 2006. In non-recourse states such as Nevada, 7.3% of all it's housing units received a foreclosure notice in 2008.
No wonder the American lenders were so keen to sell on their mortgage portfolios to guillible European banks! And this is why the losses are mounting up.
The Obama administration is likely to take drastic action to solve the problem and simply legislate to reduce the homeowners mortgage to below the market price so that they are no longer "underwater" and no longer have an incentive to default. A write down figure of 20% has been bandied about together with a clause making the new loan a "recourse" one, so that is the limit on the losses. American banks are worried about this as they will lose on the mortgages that haven't yet defaulted. But the upside is that there won't be this glut of foreclosed homes coming onto the market to depress prices and house prices should stabalise. Those holding the liabilities (mainly our silly banks) will take a hit, but reducing the foreclosures should mean that those losses are confined to the 20% or so write down in the loans. Given that the banks are currently suffering from uncertainty about how big their losses could get, stating now that their losses will be about 20% and writing it all down in one hit should mean that the banks should stabalise too.
The true solution for the future of course is to end all non-recourse mortgages - but there are so many vested interests in America who want to keep them that this is unlikely to happen.