I am going to just have to agree to disagree with some of you who don’t believe that upside-down borrowers are going to benefit from the govt. intervention into housing. Again, the Fed is going to purchase at least $500 billion of securitized mortgages. Bernanke is well-established, on the record, since at least March ’08, strenuously advocating principal write-downs. Now the Fed is going to own the paper. What in the world do you think is going to ultimately happen?

I will concede that Bernanke has mentioned, in what clearly appears to me as an aside in his view, the Office of Thrift Supervisions’ proposal of profit sharing between the lenders/homeowners on equity built post-writedown. In fact, I expect a very good likelihood exists that early Fed modification programs will contain equity-sharing provisions. Nevertheless, I believe without a shadow of a doubt that the best chance for a successful program lies in writedowns with no future profit-sharing as this is the only way to get full participation of borrowers. Bernanke knows this to be true. He may attempt half-measures first, but to get to the end-game I believe he knows that writedowns with a catch are probably not going to be attractive enough to get the job done.