Some states are experimenting with principal write-downs, using the Treasury Department’s Hardest Hit Fund to finance them, and the results have in some cases been positive. We’re talking about 40,000 borrowers at most, a paltry sum compared to those in need, but it could lead to data showing the stability of principal reductions as a modification strategy (data we already have, but this would be in the current context). And this is even more interesting:

When American Homeowner Preservation was first conceived, the vision was a solution which benefited homeowners, investors as well as existing lenders. In practice, homeowners and investors have recognized the advantages and have responded mightily. However, AHP’s offers of prompt resolutions which maximize lenders’ recovery on their troubled mortgages have generally been poorly received by lenders. As a result, approximately 15% of AHP short sale offers are ultimately approved by lenders and a great deal of time and effort is spent trying to resolve the other 85% of applicants who ultimately cannot be assisted due to lack of cooperation from existing servicers.
To solve this challenge, AHP has been bidding to acquire pools of REO’s and subperforming mortgages at large discounts. By gaining control of the REO’s and mortgages, AHP can then approach each family and offer them an AHP Lease/Option if they want to stay, or an incentive payment if they want to move.
If the family does not want to stay or the home is vacant, the home is marketed through local real estate agents to sell promptly at discounted prices to cash buyers. Because the pool properties are purchased at substantial markdowns, they can be resold at wholesale prices and still generate a good return.

Basically you have American Homeowner Preservation using private investor money to buy up mortgage pools and give the borrowers the solutions they need, not the ones that maximize profits for the company. I don’t know that there’s that much money out there to do this on a grand scale, even though the short-term returns are pretty high, but it’s an exciting development, and it shows you can do well and do good at the same time. Frankly, it’s what the government did with the Home Owners Loan Corporation in the 1930s, and what they should be doing today.