Am I missing something? How can a “bank” reduce principal balance?
I keep hearing talking heads say “a foreclosure moratorium will give banks an incentive to modify mortgages and reduce principal balances.” Last time I checked, the banks like BoA, Wells, Citi, etc, packaged most of these mortgages into MBS’s and sold them to pension funds and other investors. I do not see, if for example, Citi packaged and sold an MBS securitized by a $ 150K note how Citi can reduce that balance. The REMIC holds an asset worth $ 150K, not Citi. Why would the holder of a piece of that REMIC let Citi reduce the principal balance to a lower amount, say $ 100K. I know Citi isn’t going to write a check to the MBS for the difference.