. The findings cast doubt on the notion that a broad-based program to reduce troubled homeowners' mortgage debt would hurt the nation's financial system. If the four lenders established a year-and-a-half long program to reduce debt on first mortgages by 15 percent for borrowers at risk of foreclosure, and also worked to lower loan balances by 30 percent until 2015 for seriously-delinquent borrowers and those in foreclosure, they'd face little consequence, the IMF said. "Our stress tests highlight the capital strength of U.S. banks," the organization said in its report, noting the lenders' ability to manage "even under a severe shock." State attorneys general and some federal agencies are seeking to penalize the nation's five biggest banks for abusing homeowners and breaking federal rules and state laws during the foreclosure process. Officials are ps will rise and make payments unaffordable. Conversely, lenders don't like fixed-interest rate loans because it forces them to internalize the interest rate risk, which they must mitigate with other financial products. Without government intervention, lenders have significant incentives to switch to floating rate mortgage loans, which shifts the interest rate risk back to borrowers. (3) Finally, the normal residential mortgage is a fully amortizing loan, which means that at the conclusion of the 30-year term, the principal is paid in full. Fully amortizing a loan over a long term further reduces the borrower's refinancing risk. If the borrower likes her home and can afford her mortgage, she need never refinance. She can stay in her home, making payments for 30 years and, at the conclusion of the term, have a bonfire in the backyard to burn the mortgage. In contrast, shorter-term commercial loans are partially amortizing, which means that they amortize over 20 or 30 years but must be repaid in three to ten years. As a result, when the borrower is forced to refinance, a large lump sum payment of principal is due. Because of their 30-year mortgage loans, residential borrowers have actually been advantaged over commercial borrowers during the current economic downturn (although it obviously doesn't feel that way.) CoreLogic reported yesterday that nearly 1 in 4 American homeowners are "underwater" on their mortgages, meaning that they owe more than their homes are worth. Collectively, this results in an "equity gap" of approximately $751 billion. While these underwater borrowers understandably feel stress, if they are current on their payments and don't have to move, they will not be forced to internalize the current discounted value of their homes. Because of the long-term nature of their loans, they can wait out the economic downturn and sell or refinance when home values rebound. Commercial borrowers face a more pressing problem. The "equity gap" for commercial real estate borrowers has been estimated at over $1 trillion. But given the short term nature of their loans, many commercial borrowers with maturing loans have been forced to: (1) sell into a distressed market; (2) surrender their properties to the lender through foreclosure or deed in lieu of foreclosure; or (3) refinance by contributing additional equity (i.e. an increased downpayment). If the standard residential mortgage term is reduced from 30 years to 10 years, in the next economic downturn, underwater