There could be significant social backlash from the 40 million homeowners who own their homes free and clear and who will see the loan modifications for others as inherently unfair and a cost that they wind up paying.

For a nation overwhelmed with debt on every level, the loan modification program serves to legitimize debt repudiation. If mortgages can be written down, what’s next in line? Debt destruction and asset destruction go hand in hand; wealth will continue to evaporate on a massive scale thus guaranteeing further economic problems.

If the government believes that a 34% or 38% debt ratio is the most that can be handled without a risk of default, then by extension, no mortgage should be approved by Fannie or Freddie or the FHA, etc. where the borrower’s front end debt ratio exceeds this level. Yet, everyday, I see borrowers being approved at debt ratios far in excess of 38%, thereby producing the next crop of “loan modifications” and more loan write offs.

Like many good intentioned government programs, the current rush to modify millions of loans will in the end probably result in more harm than good.