By following new guidelines issued last month by a banking- industry group called the American Securitization Forum, Hewitt said servicers will be allowed to modify subprime mortgages where defaults are “reasonably foreseeable,” without jeopardizing the trusts’ off-balance-sheet treatment. Of course, you can’t make money out of nothing, so this just means the losses will bleed in over a long period of time where investors will be “surprised” by earnings shortfalls.

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