"'What does that mean - they walked away from mortgages because they were "upside down"?'"

                If you are "upside down" on a loan, it means you owe more on the collateral (house) than it's worth on the market.

                I saw a guy on C-SPAN who made the point that a lot of the trouble we're seeing in housing now can be traced back to the "Bankruptcy Law" that was passed a couple of years ago.
                It all came about because the banks thought they'd devised a perfect scheme to steal money from the public through credit cards, but people were simply running up debt on the credit card and then filing bankruptcy.
                The new law made that a lot harder to do. But before that law was passed, people could file bankruptcy and then save their home by restructuring the loan on the house.
                Now, because they can't get out from under all of their consumer debt, it wouldn't do any good to file bankruptcy, so they just walk away from the house.
                I suspect there are a lot of cases like this.