The Mortgage Salvation Plan Spreads (JPM)(C)(WFC)(BAC)

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Ben Bernanke and Henry Paulson may be holding guns to the heads of major banks to get them to "reset" the mortgages of troubled homeowners, or the generous spirit of the holidays may have reached the corner offices at the big financial firms.

Yesterday, Citigroup (C) followed the road taken by JP Morgan (JPM) and offered to modify the terms of as much as $20 billion in mortgages for borrowers that are current on their loan payments but at risk of falling behind. Added to the $75 billion of home loans which are candidates for alteration by JPM and the swell is turning into a wave.

Congress has gotten the idea that it has to set up its own mortgage salvation plan, a church for the souls who may lose their homes to the repo man. But, the commercial banks may beat them to the altar.

At this point, if Bank of American (BAC) and Wells Fargo (WFC) offer similar programs, the pool of mortgages being reconsidered could go to $250 billion because of the acquisitions of Countrywide and Wachovia.

The notion is not popular, but the Paulson plan may be working, along with the Bernanke emergency window where financial firms can trade worthless paper for real money. By some estimates, $2 trillion has gone out of that Fed facility. The amount of capital pumped into financial firms by the system may just have been enough for the mortgage problem to be partially solved by the lenders themselves.

Of course, banks may be acting in self interest, their normal motivation. A falling housing market means more mortgage write-offs. Even worse, it may lead to more haircuts on mortgage-backed paper.

Regardless of the reasons, the banks may help housing find a bottom.

Douglas A. McIntyre