On the one hand, the basic premise of modifying mortgages to avoid foreclosure is sound; but its implementation has been less than effective. For one, voluntary involvement of mortgage servicers lacks the type of teeth foreclosure prevention needs. Servicers have no incentive to involve themselves in foreclosure prevention when they make just as much if not more money stalling help for homeowners or even allowing homes to be lost to foreclosure.
At the end of the day, the government, which had invested billions into HAMP could only wag their finger at “naughty” mortgage servicers who effectively abused homeowners by stringing them along the mortgage modification process; but then ultimately foreclosing on them anyway.
What we need today is a program which is mandatory for the mortgage companies and servicers who have the highest rates of foreclosures. The program should require the servicer/mortgager to reduce the principal of mortgages so that they are in line with the reality of the housing market. That means no more $300,000 mortgages on homes only worth $80,000. This will allow homeowners to keep their homes out of foreclosure and to continue paying their mortgage, even if it is at a lower interest rate.
Maybe to protect the interests of the mortgager, we could also require the borrower to remain in their home for a certain number of years to prevent homeowners from rushing to sell if the housing market suddenly improves after their mortgage has been modified.