This is not a story about the merits or shortcomings of this particular proposal, which has already generated national attention. The banks that control mortgages deride it as an affront to the sanctity of contracts. Even some people who advocate principal reduction, such as financial blogger Felix Salmon, have branded the proposal a sweetheart deal for the venture fund. The fund's backers argue that they are merely stepping in to assist troubled municipalities with a pragmatic, if unorthodox, solution to a festering, vexing problem.

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