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[quote="Guest"][quote="Guest"]Reducing the principle may be unpalatable, but it is the most effective option in terms of preventing default.  Something like a fifth of homes with a mortgage are "under water" and reduction provides homeowners with a reason not to walk away.  Under the current version of the plan there would be an equity-sharing agreement if the value increases and the homeowner sells.  The 5-year rate-freeze is used for ARMs that are about to adjust, increasing the payment.  Much though I agree that it would be more fair to the rest of us to refinance into a longer-term loan it doesn't really keep people out of foreclosure and foreclosure hurts us all.[/quote]

I can understand permanently reducing interest rates for people in trouble and even forgiving some accumulated interest if there is any, but I don't understand how they could reasonably reduce principle payments, with no mechanism to repay it if the market recovers and it becomes equity for them, when people who are successfully paying don't get the same treatment.  You aren't just helping them out on their payments then, you are basically buying part of their house for them and giving it to them free.  So if two neighbors have houses both worth $500K and one gets their priciple reduced by $200K and the other doesn't, in 10 years both will have assets potentially worth $800K (example), but one will have only had to pay down $300K to get there and the other had to both pay the full $500K and contribute their taxes to pay for their neighbors $200K.  The neighbor who got help then gets a $500K profit while the one who had to pay the taxes to help them only gets a $300K profit.  That makes no sense.[/quote]

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