So let’s get to affordability on a $300,000 loan, which might be higher or lower than common loans in your area.
$1,703.37 Monthly Principal and Interest @ 5.5% interest rate
$390.63 Monthly Real Estate Taxes $375,000 property value @ 1.25% annual tax rate
$75.00 Monthly Insurance based on $900 annual policy
$2,169 Total Monthly Payment (PITI)

Required Monthly Gross Income to Afford
$6,996.77 Borrower Gross Income @ 31% Qualifying rate
$5,707.69 Borrower Gross Income @ 38% Qualifying rate

It seems pretty reasonable to me that a borrower qualifying at the 31% rate should be able to afford the home, they’ll have $4,827 pre-tax income left over after making that house payment every month. Things will be a little tighter for the borrower qualifying at that 38% rate. They’ll only have $3,539 pre-tax income left over, which is just about $1,300 less than the 31% borrower.

So what happens when you take an area like Southern California where values hit the $700,000 range for moderate housing in the coastal parts of the state and many borrowers were using stated income loans? For any new loans, including loan modifications, they’ll have to hit those percentage numbers. We’ll use a single $700,000 loan.

$3,974 Monthly Principal and Interest @5.5%
$729.17 Monthly Real Estate Taxes $700,000 @1.25% annual tax rate
$150.00 Monthly Insurance based on $1,800 annual policy
$4,853.17 Total Monthly Payment (PITI)

Required Monthly Gross Income to Afford
$15,655.39 Borrower Gross Income @ 31% Qualifying rate
$12,771.50 Borrower Gross Income @ 38% Qualifying rate

I believe the concept of making home affordable is to make sure borrowers are only paying 31% of gross income if a loan modification is being considered, so I wonder “Are there really that many families bringing in just about $188,000 every year in SoCal?”. The greatest probability is most loan mods won’t be viable in Southern California and the foreclosure rate will remain elevated for the foreseeable future.