As America's mortgage reckoning progresses, regulators, taxpayers and homeowners may eventually have to swallow a bitter pill of truth: Many troubled loans can't be worked out and will be sustaining losses, possibly for years to come. Hundreds of billions of federal dollars have been spent to keep funding costs low for the banking industry and its wealthiest clients, but can't do much to rescue troubled borrowers who are in over their heads.

Howard Atkins, CFO of the country's second-largest mortgage servicer Wells Fargo ( WFC), noted that 30-year fixed mortgage rates are now tracking a full percentage point below the average rate in Wells' broader loan portfolio.

"Any homeowner that can refinance a mortgage loan should do so," said Atkins. "Even if that cash-out is relatively nominal," he added, "the wealth effect of this potential refi boom, in our view, is quite substantial."

--Written by Lauren Tara LaCapra in New York.

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