A Boston nonprofit, Boston Community Capital, is teaming up with some financial institutions, in particular Bank of America, in a pilot program that has the effect of writing down mortgages to close to home value. http://www.npr.org/2012/01/02/143601604/in-mortgage-crisis-some-banks-agree-to-cut-losses

BCC says it works with qualifying homeowners and banks to buy underwater homes, either in short sales or at foreclosure, and then sells them back to owners at just above current market value. The nonprofit takes the risk of making the resale and allows those buying back to use their own lender or a mortgage company that BCC works with. See the program’s FAQs: http://www.sunhomehelp.org/faq/sun

BCC is playing a gatekeeping role as far as who qualifies (there must be an ability to pay the written-down loan but an inability to pay the original loan). Also, BCC may have better credibility with distressed homeowners than financial institutions such as B of A do. The pilot is supposed to test whether such a program can be run without promoting “strategic default,” according to the NPR story.

Principal write-down is much needed relief to stabilize the housing market and reduce the lose-lose impact of foreclosure, so this is a pilot worth watching. A concern, however, is whether we can trust any reports that come out about it. There does not seem to be any neutral third-party such as an academic researcher studying what happens in the program. Also, a supposed fact cited in the NPR story is unattributed and highly doubtful—that 30 percent of private home loan modifications last year involved principal write-down. That certainly wasn’t true of the government-sponsored Home Affordable Modification Program, so if true about private modifications, it raises even more questions about the troubled HAMP.