I agree with these kinds of modifications (actually wrote a series of letters to legislators, Federal Reserve, Treasury, Barney Frank, etc. about a year ago with this recommendation).
Why? Because the borrowers should not be able to STEAL hundreds of thousands of dollars from the lenders without any repercussions. Additionally, lenders will be FAR more prudent in the future if they are expected to take the risk of these losses in the event the FB sells at a price that is lower than the original loan. Lending standards would rightly be tighter, and prices (which are determined by future buyers, not current sellers) will drop to affordable levels.
My only concern is that the lenders have been hesitant to go along with this principal reduction program, and I believe this is the REAL reason behind the bailout.
According to the bailout bill, Treasury is allowed to modify mortgages — including principal reductions — and I fear it will be the taxpayer, not the lender, who will end up eating the losses.
Both lenders and borrowers were at fault for their current situation, and both should have to suffer the consequences of their actions. This is ultimately why I am opposed to the bailout. They will try to make both borrowers and lenders whole at our (responsible taxpayers’) expense.
