The administration’s latest plan to help struggling borrowers is calling for principal reductions. Lowman, reading from his statement said:

“Like all loans, mortgage contracts are based on a promise to repay money borrowed,” Lowman’s prepared remarks read. “Importantly, there is no provision in the mortgage contract, express or implied, that the lender will restore equity or reduce the repayment amount if the value of the collateral — be it a home, a car or a stock market investment — depreciates.”"If we re-write the mortgage contract retroactively to restore equity to any mortgage borrower because the value of his or her home declined, what responsible lender will take the equity risk of financing mortgages in the future? What responsible regulator would want lenders to take such risk?”

Read the entire statement here (PDF)

In January, before a congressional panel investigating the melt down, CEO Jamie Dimon said the bank conducted no stress test that showed home prices falling. “I would say that was probably one of the big misses,” Dimon said. “We stressed almost everything else, but we didn’t see home prices going down 40 percent.” In other words Bank of America made loans without taking into consideration that the homes backing those loans may in fact depreciate.

So, in essence Lowman is telling the House Financial Services Committee that it’s the homeowner’s responsibility to bear the losses that came as a result of his and other Bank of America executives oversight.

Homeowners were understandably outraged by Lowman’s remarks and according to the AP, “After the hearing was over, dozens of activists from the Boston-based Neighborhood Assistance Corp. of America chased Lowman through the marble-floored hallways of the Rayburn House Office Building, pressing him to do more to help troubled homeowners.

He did not respond to their requests for a meeting and eventually left the building with the assistance of police.”

Lowman apparently doesn’t hold himself or his industry to the same high standards, because in many cases banks and servicers will in fact rewrite the principal – by adding to it.

In the case of my loan with Ocwen Financial Services my principal was actually increased by $27,000 and none of the payments made during the the trial period seem to have been applied to my loan, or anywhere else for that matter.

Lowman’s colleagues are coming out in force admitting to rampant unscrupulous tactics,WAMU knew of the mortgage fraud, Wells Fargo did as well, and bank insiders are starting to come clean. “I decided that I cannot live with the extent of the compromises to my value system,” said one executive, who’s been in the industry for more than 20 years.

For a real eye opener on this fiasco watch the April 3, Bill Moyer’s Journal with former Director of the Institute for Fraud Prevention, William Black.

Ocwen Financial Services and Bank of America have recently been active in the media in the form of press releases and congressional hearings expounding on the importance of principal reduction. Last month Ocwen’s President Ron Faris told the Domestic Policy Subcommittee of the House Oversight and Government Reform Committee, “In Ocwen’s experience, negative equity increases the chance of a re-default by one-and-a-half to two times.”

Bank of America has yet to make any real headway in modifying mortgages (PDF) and Ocwen’s own employees deny that the company reduces principal in any of their cases. In phone and e-mail conversations with Jennifer Levy, an Ocwen Bank Loan Workout Specialist and Farris’ own secretary, Linda Ludwig, both women stated emphatically that Ocwen never reduces principal, despite what their executives are quoted as saying. Ludwig even accused me of taking what they said out of context.

Despite Ocwen’s shady track record of VA fraud and questionable accounting practicesCongress continues to seek their advice and invites them to testify without once asking for proof of their claims or asking to speak to the people who matter most, the borrowers.

Similarly, Tuesday’s hearing had testimony from homeowners in the form of last minute faxes and e-mails to Barney Frank’s office. The request for stories, allegedly from Frank’s office, was made in much the same way a 5th grader might do a science project. The night before with practically no research.

According to one blogger, Brendon Woodbury, a House of Representatives staffer, went to a web site that is riddled with ads for payday loan and loan modification scams, run by a guy of questionable integrity and posted his e-mail (brendan.woodbury@mail.house.gov). Since the owner of the site sees “outside” help as competition to his income, the post was removed and can no longer be found. The request was posted at 7:26 Monday night for a Tuesday morning meeting.

Had Woodbury done a little homework before starting the project he might have found that there are several reputable sites dedicated to homeowners and consumers with plenty of stories. ShameTheBanks.org, has dozens of stories written by the homeowners in their own words – a perfect sampling he could have used.

Denise Richardson at givemebackmycredit.com has been a passionate voice for the consumer for more than fifteen years and has built an impressive online presence working with various activist sites, national advocates and consumers.

Michael Redman, homeowner, turned accidental activist, started 4closureFraud.org two years ago as the result of a fight with WAMU and JP Morgan Chase. Since then his blog has become one of the go to resources on the Foreclosure Crisis for homeowners, attorneys and activists nationwide.

Lisa Epstein, after learning of the massive con game that is behind Americas foreclosure crisis, as reflected in her two year battle with US Bank as trustee for JP Morgan Chase, found herself in a tireless pursuit of a national moratorium on foreclosures. Epstein runsForeclosureHamlet.org.

These would have all been excellent resources for any congressional staffer assigned a project of this importance.

Congress, and in this case Barney Frank, continues to neglect the homeowner when asking about the progress of loan modifications. They ask the CEO’s and Presidents of Banks and Servicers, known for disreputable and unconscionable practices to report on their own progress. It’s like asking that same 5th grader to grade his own science project.

The idea of reducing loan principals last month became a centerpiece of the administration’s efforts to help seven million households threatened with foreclosure, David Streitfeld reports in The New York Times. But an official at one of the banks, David Lowman of JPMorgan Chase, said principal reduction could reward households for consuming more than they could afford, might punish future homeowners by raising the cost of borrowing and in any case was simply unworkable.

“We are concerned about large-scale broad-based principal reduction programs,” Mr. Lowman, the bank’s chief executive for home lending, testified during a hearing of the House Financial Services committee.

Mr. Lowman’s comments were briefly echoed in more restrained form by an executive from Wells Fargo. “Principal forgiveness is not an across-the-board solution,” said the executive, Mike Heid, co-president of Wells Fargo Home Mortgage. Two other bankers who testified, from Bank of America and Citigroup, largely avoided the issue.

A Treasury Department spokeswoman declined to comment on the hearing.

The government modification program has been under attack by lawmakers and community groups for doing too little too slowly. The Congressional Oversight Panel is issuing a report Wednesday that says, “Treasury’s response continues to lag well behind the pace of the crisis.”

In response, the Treasury Department said that its latest modification report, also to be released Wednesday, showed that the number of permanent modifications grew in March to 230,000 households, an increase of 35 percent from the previous month. The Treasury also stressed it was still introducing programs, including those aimed at reducing mortgage principal.

The testimony on Tuesday, however, offered the first public acknowledgment that these latest foreclosure prevention measures might encounter some resistance among banks, ultimately rendering them less effective than hoped.

One of the new government programs will require lenders to strongly consider reducing the mortgage balance for distressed borrowers who qualify for the government’s modification plan.

A more radical plan urges lenders to refinance loans for borrowers who may be solvent but who owe much more on their homes than they are worth. Many of these loans have been securitized into investment pools but are serviced by the big banks.

The investment pool would get the mortgage off its books for the current market value of the property — less than it is owed, perhaps, but more than it would receive if the house went into foreclosure. The borrower would receive a new government-insured loan at market value, presumably making him less likely to walk away.

It is this last program that seemed to irk JPMorgan Chase.

“If we rewrite the mortgage contract retroactively to restore equity to any mortgage borrower because the value of his or her home declined, what responsible lender will take the equity risk of financing mortgages in the future?” Mr. Lowman asked in his prepared comments.

In any case, he said, Chase cannot rewrite most of these deals. The bank’s contractual arrangements with the investors do not allow for principal reduction.

Furthermore, Mr. Lowman argued, the cost of reducing principal will be built into future loans, resulting in less access to credit and higher costs for consumers.

What Chase — one of the strongest of the big banks — might be really worried about is not the primary mortgages it services but the $133 billion in home equity loans and lines of credit it carries on its own books.

The question of what happens to these secondary loans in a mortgage modification was at the heart of the Congressional hearing on Tuesday.

Investors who own the primary loans argue that the others should be second in line, getting only the money that is left over after they have been satisfied. But banks like Chase, which own the majority of second loans, want a better deal. Since they have the power to disrupt any modification, the result so far has been a standoff.

Alan M. White, an assistant professor at Valparaiso University School of Law who has closely studied the various modification plans, said, “Chase and Wells are attacking a straw man. Nobody is arguing for across-the-board principal reduction. But I think that they feel a need to push back hard on any attempts to get them to write down the troubled second mortgages and home equity lines of credit in their portfolios.”

Mr. Lowman emphasized the moral side of the issue. Mandating write-downs in home equity loans would be a particularly bad idea, he said, because these loans were simply used to consume rather than pay for housing.