HAMP PRA is one of the best approaches for modifying loans. It rewards borrowers if they do not re-deafault. The re-default rate is currently at 40%. If homeowners make the MOD payment, they get phased principal reductions. For the cases I have seen the total principal reduction brings the remaining balance down to approximately FMV at the time of the mod. That means that the significant principal portion of each monthly payment is effectively going to rebuild equity immediately for HAMP PRA borrowers.However, as the Rev Proc notes in Sec. 3.08, the IRC Sec. 108(h) relief from reporting as income does NOT apply to the cash out portion of any refinance (i.e. the portion above “qualified principal residence indebtedness”). The borrower will continue to be subject to tax on that forgiveness unless another exclusion applies. Since that tax liability can make an otherwise positive outcome unworkable, its important to look at Chapter 7 before the modification is executed.