1) Instead of using your “proprietary” database which seems to not paint a complete picture, one could use either the LoanPerformance or McDash database to view the total amount of delinquent loans in addition to the charts you present. That way, one could see how much delinquent, but not foreclosed, inventory is coming.

2) It’s not accurate to say that a 38% DTI won’t work. You are making the same error that Lockhart and Bair are making. It’s the amount of income left over after paying all the bills that matters. A 38% DTI for someone making $4k/month is a much different thing than a 38% DTI for someone making $10k/month.

I believe that the point that Mr. Mortgage is making is that the 38% DTI ratio is too high. The time tested 28% DTI is the safe area where the mortgage is likely to be paid without disruption and continual payment problems. It may not seem like much but going out from 28 to 38 is a 35% increase above the comfort zone and is not going to remove financial stress.

The DTI is against gross income. When we are dealing in increases in the DTI from 28 to 38 and say it is a 35% increase, that is not the real story. The real story is what happens when you move these numbers against net income.

Bottom line is if you move it out of the “safe zone” the rewritten mortgage has a high chance of future default, all the while leaving a family in a financially stressed condition.

You assume that prices will go up when loans are renegotiated – where do you get that assumption? Underwriting is going to be totally different going forward and the prices of homes are going to revert back to their true affordable value, not stay where they are with “owners” who are really renters. Yeah, there is a mortgage interest tax break but for most at the lower income levels the break isn’t as great as advertised as you need to compare taxes with AND without itemizing which makes the real benefit smaller at say, less than 100K per year income.

It is kind of like this. You’re playing a game of Texas Hold um at a table with 8 players. You buy your house, you look at your hand and you are holding an Ace King. The flop comes down, Jack, Queen King and you glance at your cards. WTF!! The two cards that were formally an Ace King in your hand have turned into the 2 of diamonds and 8 of clubs!

The 2 and the 8 have nothing going on with the three cards in the flop. Trying to stay in the game and fighting raises until the river card turns is absolutely just throwing money down the drain.

Yeah you got money in the pot but let’s face it, it is fold um time. You are never going to win with this hand, it is just throwing money away. You need to stop your losses right now because trying to hang on will only have a bad outcome.

The current modification programs are like this. The government comes along and says “We will take that lousy 2 of diamonds you are holding and replace it with a 7 of diamonds! The government is going to throw 100’s of billions in this program! The government could throw 2 trillion at this kind of a program and a year from now they will still have 2 Trillion in the program.

Now lets look at the Hope for Homeowners program. 150 billion and when we checked a month ago they had helped something like 79 homeowners. Whooohooo!

Now when the government offers a program to the bankers, it is quite a different story now isn’t it? They are lining up and even turning into a bank holding company to get a slice of that pie! There must be an obvious reason for this kind of behaviour and that is the banker can see a clear benefit while the homeowner cannot.

The other problem is that when congress goes out to do one of these bills to save the day, is that they really do not know the mortgage business. What do they do? They call their Tactical Advisory Committee (TAC), which is made up of industry experts. The industry experts of course are bankers! The TAC solutions to the problem all revolve around the principle balance of the loan being GOD and everybody knows you don’t mess with God. The principle balance is sacred ground and therefore nothing will ever come out of government to change the home holders cards. The home holder is still left with a hand that is not worth staying in the game.

Even if they do bring it down to current market is it worth it? If we look at the loans issued in the prior years we can see that loans are set to blow up all the way through 2011. Even when 2011 rolls through, there is still going to be this big stack of unsold inventory overhang. Chances are a mod at market today will be underwater again when our earliest bottom hits in 2011.

Who in their right mind really can look at the loans, look at the resets and not expect the median home price to drop perhaps another 20% easy by the time 2011 rolls around? This basically means that the average person buying a house today will have the entire 20% down wiped out before or during 2011.

I think that this is pretty much what Mr. Mortgage sees in the market, and why he is saying that everything needs to be reset, because we are not going to get away from minimum projected 2011 bottom, because we are not going to have any buyers lined up even on foreclosure properties. Everybody is going to wait until they see the resets are starting to clear the market.

People will come out to buy when they think the bottom is in, not before. When everyone can look at the data and see the clouds parting and a sliver of blue sky, people are gong to start getting their feet wet, not before.

This minimum bottom in 2011 is what makes walking the best solution. Let’s throw the math into it. Let’s call today’s value 100. A 20% loss in median value would be 80. To gain back to 100 from 80 you need a 25% gain. The average gain in a normal market is 3%. If you bought a house today, you are likely to lose through 2011 and then would break even in the year 2018-2019. That turns out to be a decade.

We just got through throwing away an entire decade! If you reset your loan to current market as I have shown, you are most likely going to be throwing away yet another decade of dead money at your house, which by now you are very tired of coming home to and being reminded of anyway.

Taking several months of free rent and walking seems to be a head and shoulders financial strategy over a mod principle reset to current market.

My Father use to always say, “your best loss is your last one…” In other words, stop the loss today and be done with it. If consumers were to double or triple the number of walk aways from what they are now, real modifications would come out of the wood work as the lenders would finally understand that it is time for them to be fair for total self preservation purposes. If less than 10% impact today, just imagine the power of 20%? The financial institutions lobbyists are pulling the strings of congress today. In effect, the American homeowner should engage in their own Boston Tea Party… start dumping your homes overboard.