At best this will only serve to stem the flood of foreclosure inventory. As previously stated I cannot see how this will not eventually lead us to a 1990’s Japan style real estate market over the next decade or so. If indeed distressed homeowners are allowed to stay in homes because they have principal reductions along with fixed rate loans that make payments more affordable, it will be interesting to see which ones take the bait. So it then becomes a tradeoff of living with bad credit as you walk away verses staying. Running the numbers for each individual case may indeed point to a better decision to stay rather then go for distressed homeowners regardless of forfeiting future appreciation. Who cares right? What happens for those who stay, get a principal reduction, then sell the home at a lower cost so they didn’t have to short sell it. Basically the effectively walked away without getting hammered on thier credit. Can this happen? Don’t know. I do not know the details of the new socialist policy our government has decided to implement against the popular will of the constituents it supposedly represents.

In the long run to me this policy will hurt everyone, even patient buyers on the sidelines who have waited and waited. It will simply serve to delay the free market process of the much needed price correction, it will burden my kids, it will reward failure, and ultimately I look for another bailout before the year is out.