Banks are not following the guidelines as to principal forbearance, according to HAMP guidelines, servicer
should forbear principal no more than 30% of the principal
if it is needed to reach the 31% payment target, IT IS NOT OPTIONAL (it's the last step in the waterfall calculation)
From HAMP guidelines dated October 28 2009: Are there limits to how much forbearance is required in the standard modification waterfall? Servicers are not required to forbear more than the greater of (i) 30 percent of the unpaid principal balance of the mortgage loan or (ii) an amount resulting in a modified interest bearing balance that would create a current mark-to-market loan-to-value ratio of less than 100 percent. If the borrower’s monthly mortgage payment cannot be reduced to the target monthly mortgage payment ratio of 31 percent unless the servicer forbears more than the amounts described above, the servicer may consider the borrower ineligible for a HAMP modification. However, servicers are permitted, at their discretion, to forbear principal in excess of the amounts described above in order to achieve the target monthly mortgage payment ratio of 31 percent.
Is a borrower with a mortgage loan that has a current remaining term (prior to modification) that is greater than 480 months eligible for a HAMP modification? Yes. The fact that the loan’s current remaining term is greater than 480 months does not disqualify the borrower from HAMP eligibility. If the borrower is otherwise eligible under HAMP and reduction of the borrower’s current interest rate to two percent would not be sufficient to reach the target monthly mortgage payment ratio of 31 percent, the servicer should skip the term extension step of the standard modification waterfall and proceed to the principal forbearance step of the waterfall to attempt to achieve the target monthly mortgage payment ratio of 31 percent. The servicer should enter the remaining term in the NPV input field labeled "Amortization Term after Modification" so that the number in this field and the "Remaining Term" NPV input field are identical.
https://www.hmpadmin.com/portal/docs...r/hampfaqs.pdf