Over the past few years, it has been pretty easy to shrug off banks' and servicers' decision to foreclose as their default behavior, instead of providing struggling homeowners with mortgage modifications. After all, in most cases a deep principal loss would be necessary to make the home affordable, since many of these borrowers probably shouldn't have been provided their mortgages in the first place. Banks and servicers were just working in the best interest of the investors who owned these mortgages, right? Investors are now saying that this generally accepted logic is incorrect.
Let's back up for a moment. It's pretty easy to see why investors became angry with banks over the past few years. The banks sold them securities full of toxic mortgages. As a result, these investors are incurring billions of dollars in losses as homeowners default and foreclose. And to the extent that they can force banks to buy back these mortgages, they are trying to do so. That's the source of the ongoing foreclosure put-back crisis.
But last week, the Association of Mortgage Investors ("AMI") produced a White Paper (.pdf) that produced a very different criticism of banks. It turns out that investors feel that banks' aggressive foreclosure tactics are not in their best interest. Investors would prefer banks to take more care to work with borrowers to perform mortgage modifications in many cases.