The NY Times article lays out the predicament of the people who will not qualify for the program, high-end mortgages.
While I don't agree with borrower #2 that his balance should be reduced, I find it hard not to agree with borrower #1 who is asking for "temporary" reduction in his mortgage payments until his income can recover.
If the lender were to cooperate with #1, it could continue to receive cash flow and eventually come out decently when the economy recovers. That could, indeed, be better than taking a huge loss on the loan by putting the property into foreclosure.
Unless there are specific laws precluding the lender from making such discretionary decisions, it seems like a viable solution to borrower #1 and the bank. Borrower #1 is not asking for forgiveness of his debt.
If there are specific banking laws that conflict, perhaps that can be handled in some legislative way?
Are the banks more willing to NOT cooperate with these borrowers because they figure they will be compensated for their losses by more government money?