The programs are designed to help homeowners that have either "financial hardships" such as lost income, or "negative equity." The premise is that keeping people in their homes will be, over the long term, better for the housing markets in general–less supply–and that the investors or institutions that own these mortgages, even if the principal is reduced, stand to benefit more from this limited write down of the principal than if the home is foreclosed on and sold.
The administration hopes to serve "3 to 4 million struggling homeowners through the end of 2012," funding it with $50 billion from the Troubled Asset Relief Program (TARP).
Yesterday Bank of America announced a similar mortgage principal reduction program, for certain troubled mortgages. See that article, here.
