Do I pay taxes on a deferred principal adjustment?

Possibly, but not in most cases.

If you particpate in a government program where the government makes up the difference between the original principal and the adjusted principal, you don't have any tax consequences.

However, if your motgage holder reduces your principal and there is no government payment covering the difference, the mortgage holder is required to issue you a 1099C in the year the debt is cancelled, which would be several years from now (the "deferred" part). In general, cancelled debt is subject to income tax. You can reduce or avoid the income tax by being insolvent or bankrupt at the time the debt is cancelled. Until 12/31/2016, cancelled debt on a principal residence is also tax-free. For any of these cases, you must file Form 982 with your tax return.

Only if you fail to pay it.

The deferred here simply means the life of the loan is extended, allowing you to either pay less right now, or postpone payments until you have more income.

You will owe taxes only if the debt is cancelled.

nope