I am torn once again. I just read the Yahoo story about BOA forgiving an average of $150k of the principle on up to 200,000 loans. On the one hand, I know people that have taken it in the shorts during this housing deal. One buddy lost about $200k on a house. Other people are laid off with little to no work available. On the other hand it seems to be rewarding people for buying too much and being late on payments.
I would suggest forgiving the money with some conditions. I would set it up as a 30yr fixed rate balloon loan with the amount to be forgiven as the balloon payment at the end. When they pay to the end of loan the balloon is forgiven. Also, if they sell between now and then they loose any profits up to the amount to be forgiven.
My main issue is what happens to the people that get $150k or more wiped away then turn a profit on the house in a few years? That does not seem just. If the goal is to get the loans paid and keep people in the houses then the above proposal would work. Of course I am sure there are some accounting rules that prevent this common sense solution:)
Give to Caesar what belongs to Caesar.