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In my previous posts When to Expect a Recovery in the Mortgage Market, I had anticipated that banks would rework failed mortgages because that would be in their long term interest, as the penalty for not doing so would be an additional 20% loss in the loan principal writedowns.

I’d like to say my forecast was correct. Per Reuters’ Citi backs measure to help avoid foreclosures, CEOs like Citi’s Pandit concur that it is better to modify mortgages then to face the writedowns. Expect more banks to fall in line.

Of course the bad news for other investors is that their coupon payments will be reduced (it already is), but that still is better than loan defaults that would reduced the value of their original investments.

We are moving a step closer to a 2009 recovery. Remember that it is the real economy that matters.
 

Benjamin T Solomon
QuantumRisk LLC

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Disclosure: I’m a capitalist too, and my musings & opinions on this blog are for informational/educational purposes and part of my efforts to learn from the mistakes of other people. Hope you do, too. These musings are not to be taken as financial advise, and are based on data that is assumed to be correct. Therefore, my opinions are subject to change without notice. This blog is not intended to either negate or advocate any persons, entity, product, services or political position.
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