We started talking about loan modifications many many months ago, so it should be no surprise to the old-timers here that this is happening. Mods are going to happen with increasing frequency, period. They are going to save alot of folks’ hides, at least for the time being.

Modifications will absolutely reduce the “must-sell” inventory that Rich has been so focused on. Neverless, I anticipate values will continue to come down simply due to the disconnect between prices and income and the unavailability of the exotic financing that contributed to the price run-up. In short, modifications may reduce the depth and speed of the devaluation, but not stop it. Certainly not stop it.

Mods are seen as an attractive option because of an anticipated “win-win” scenario. Distressed borrowers find relief. Loan servicers collect fees on mod paperwork. Investors maintain an income stream as opposed to a complete wipe-out. The politicians pronounce they have saved the day. And if prices continue to come down, those who have been waiting to buy win as well.