Renegotiating mortgages?

US Banks that hold mortgages were supposed to lessen the burden on borrowers by, among other means, reducing the principal owed. This is obviously not working and causing the slump in real estate to fester and prices to keep on falling. This is also quite understandable; banks don't want to take the brunt of the real-estate bubble and see their equity reduced on their real-estate loan portfolios.

There's in my view a much better way to address a situation that increasingly appears like a stalemate and keeps on paralyzing the American real-estate industry and the robust recovery that relies on a resolution of that crisis. Bank should be able to temporarily lower their equity in loans that are at risk, under the condition (that would be spelled out in the mortgage note) that any capital gain, up to the discount offered by the financial institution, plus some necessary “padding,” would be recaptured through future capital gains realized when the property is sold.

This provision could also apply to short sales and would therefore help first time buyers gain access to ownership with a discount that would be re-payed if and when capital gains materialize. Financial institutions would only be exposed to losses when a property is unable to generate sufficient appreciation and this is why I was suggesting some extra points over and above the nominal difference to pay for these potential shortfalls.