They are desperately trying to get people who are underwater on their loans to re-set their loans and lock in lower fixed long-term rates -- even if it means reducing the base amount of the mortgage.
The rationale for this (and I have no opinion right now as to whether this is a good idea or a bad one) is simple . . . with interest rates set to rise dramatically in the future in order to inflate away much of this country's massive debt, the U.S. government is trying to ward off a scenario in which millions of people walk away from their homes and the entire real estate market collapses.
Another factor here is that all of this discussion involves people with first mortgages who are in financial trouble. There may be a dangerous issue lurking here that hasn't gotten a lot of attention because banks haven't necessarily been making a lot of noise about it . . . and that is the potentially huge number of second mortgages and HELOCs that are subordinated to first mortgages that are already in trouble.
Every time government interferes with the market the affect is worse not better. History shows this over and over again.
all modifications, all such “resets” have a clause where you waive any defenses or damage claims. It also makes you accept the bank’s indemnification for THEIR SCREWUP in losing the promisory note (remember a mortgage just records the security, the note is the obligation.)