In any other time in history this would be a short sale...

I've spoken before how supply of not only soon to be foreclosures but short sales are being held off the market due to owners thinking they can get a loan modification instead of dealing with the reality of their situation.

Here is an example from Everett, Washington (emphasis added):

Deanna Skinner lives in her dream house in east Everett. But when she and her husband divorced last year, they knew they'd have to sell -- and at a time when the real estate market was crumbling.

When the Obama administration announced its affordable refinance program earlier this year, Skinner was inspired, thinking she'd found a way to keep her home through refinancing or loan modification.

You lose half the earning power permanently in your household but get to keep the house? If banks are forced by politicians to offer loan mods now and in the future they have to account for the permanently discounted cash flows for death, disability and divorce? That sure seems like it would make mortgage credit very expensive.

My expectation is that the NPV test will determine that the above borrower is denied and loan mod and will be asked to short sale or face foreclosure. But it is an example, that I feel is rampant, of people not dealing with their current situation because they think a loan modification bails them out of their predicament. It increases the duration of the pain not shortens it. But the banks are counting on homeowners not realizing that for awhile into the future.