The prospect of federally mandated mortgage “workouts” is upon us again, this time in the form of legislation proposed by Sen. Richard Durbin, D – Illinois.

A revision of existing bankruptcy rules proposed by Durbin would allow bankruptcy judges to “simply” erase some mortgage debt in an effort to stem foreclosures. A similar measure failed to pass the Senate last spring, in large part because of Republican and financial industry opposition.

But now, thanks to a clear Democratic majority and a friendly Obama administration, not to mention the fact that the foreclosure problem appears to have gotten worse, this so-called “mortgage cram down” may be closer than ever to becoming a reality.

Which is a shame, and not only for the obvious reasons.

Were these provisions to pass, mortgage lenders, banks and holders of much maligned, mortgage-backed securities would stand to lose big-time money, all at once. On top of the big-time money they’ve already lost.

The resulting losses, presumably, may cause banks to tighten already puritanically strict lending standards, at a time when what we really need is the opposite.

Those blessed few that do qualify for loans may face exorbitant closing fees or sky-high rates (or, likely, both), with the lender being forced to extract as much money up front for fear they may be forced to pay should trouble arise later on.

But beyond the math and the economics of such provisions, there’s a larger social problem we see lurking behind the scenes.

A loan is, in simple terms, a contract. A lender presents an offer of terms and stipulations, and if the consumer agrees to them, the signed document becomes a binding contract between the two.

In a Utopian world, this works on a little bit of faith between both the borrower and lender.

The lender, presumably, draws up terms fair to their own understanding of the borrower’s unique situation, terms that, if followed, resulted in gain for both parties. The borrower, in signing said contract, swore on their name that they understood if they were unable to meet these terms, said lender was entitled to recourse, be it foreclosure, asset seizure or otherwise.

We’ve said it before, but it bears repeating – a subprime or otherwise “exotic” loan, presented honestly and transparently with all associated risks made known, is not, and was never, illegal. Risky, but not illegal. There was a certain sense of Caveat Emptor at hand which played into the faith issue between lender and borrower.

There is, and has been, much talk of late of the breach of trust on behalf of unscrupulous lenders preying on ill-informed or gullible consumers. What some jerks did, is, indisputably, despicable.

But offering some borrowers a kind of lifeline in the form of mandated principal reductions on mortgages is just as egregious of a breach of trust.

The lender made a loan on certain terms, and when those terms were not met, was entitled, by law and in good faith on the borrower’s behalf, to certain recourse. Being denied that recourse, then, effectively makes a signed legal document null, and dilutes the power of the signature.

Why sign a contract, (or rather, why not sign a contract?), knowing that if one end of the bargain is not upheld, there are no consequences? We read all the time about athletes and movie stars breaking contracts, and if all it costs is a little cash from someone, well, who has been hurt?

“After committing over $1 trillion in taxpayer money to address the financial crisis, why don’t we take a step that would indisputably reduce foreclosures and that would cost taxpayers nothing?” Durbin has said in defense of his proposal.

That’s the problem. Forcing lenders to break or otherwise modify legal contracts costs us the value of our name, in addition to money, and hurts our faith in the system.

Those lenders that choose to willingly modify their terms to help their borrowers ought to be applauded, because, like it or not, they don’t have to. It’s right there in black and white, signed in triplicate, witnessed and notarized.

And those that choose not to ought not be villainized, and certainly needn’t be forced to do so. They are merely following the letter of the law.

A contract, after all, used to mean something.â–