There are multiple reasons why real estate prices continues to fall back to Earth, but one of the most important reasons why homeowners are continuing to lose their homes and adding new short sale/REO/foreclosure properties to the market, at least in my opinion, is that homeowners debt to income ratios are still far too high.

As the video below describes, the median back end debt to income ratio (total recurring debt divided by total income) is 63.5% for the Home Affordable Modification Plan.

The highest allowable back end DTI ratio I’ve ever read about is 45% (FHA loans), so being ~20% above the pre-approval cutoff should give us some idea of how over-leveraged many Americans are and how bad the government’s mortgage bailout program really is.

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