I've spent quite a bit of time working on these old Harmonys, and I've never seen a "sunken" brace. I've seen loose braces and broken braces however. I think you need to determine just what is going on with that before deciding what else you may or may not do. On these old Harmonys, there are only two types that I have found--those that have already had a neck reset, and those that need one.
I've "X" braced a number of these, and invariably they had superior tone compared to their ladder braced versions, IMO. Removing the back can be tricky, so if you decide to do that, take your time. I've always copied some version of Martin's design and have been pleased with the results.
Good luck,
Bill
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