“I also don’t see govt wiping the slate clean on principal owed by just writing down the loan amount and giving the mortgagee a “freebee”.”
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But this is exactly what is going to happen. Whether the govt. buys the loans and writes down the balance or subsidizes privately held loan write-downs, the result is the same. And this is where we are going to end up.

Without principal write-downs there are going to be a landslide of foreclosures/walk-aways – ability to pay or not – on top of the foreclosures we already have. There are plenty of influential players who know this to be true. They are just not going to sit back and let this happen.

In fact, I don’t know that I have seen a single piece of legitimate evidence that suggests that we are not moving, and quickly, toward this type of individual homeowner bailout.