???? No it isn't. If the banks accept less in return for the improve prospects that they won't have to foreclose. That is called renegotiating a contract. It is not a bailout. There is no government money involved. Two parties to a contract can change the terms. There is no moral or ethical rule against that. It happens everyday.
You have a flawed premise here: that some “bank” holds the whole of someone’s note. They most often don’t. The sub-prime mortgages have been so “securitized” that there isn’t a clear single holder to a single house in many of these situations any more:
http://www.nytimes.com/2007/11/15/business/15lend.html?_r=2&ref=business&oref=slogin&oref=login
True. In many cases it will be in the bank's best interest. That doesn't mean it isn't a bailout of the people that irresponsibly borrowed more money than they could pay back.
That is called renegotiating a contract.
It's not much of a negotiation. The banks are looking at people are close to defaulting, but could continue to pay their debts if they lock down a low rate. The banks are then offering to give them a better deal than what they already had agreed to.
Two parties to a contract can change the terms.
Sure they can. But in this case the terms are only being changed for people who are unable to live up to their obligations. That makes it a bailout.
There is no moral or ethical rule against that.
There's no moral or ethical rule against bailouts in general, though I do have some ethical issues with government bailouts because they are bailing people out with other people's money.