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Originally Posted by Papa_Complex

Good faith isn't demanding double the current debt amount. If the term of the loan is cut short by the lender, then said lender has no claim to 20+ years worth of interest.

The term of the loan was cut short by the borrowers deciding they were no longer going to pay. The borrowers were the first ones to fail to live up to the terms of the loan.

Originally Posted by Papa_Complex

Given what I've absorbed regarding the North American banking system by osmosis over the years that my parents worked in banks, in various capacities, this particular bank has some agenda other than simply maintaining their profit on this loan. The amount of money that they would lose on a property that has been devalued, by foreclosing on it, could approach the amount that they were legally entitled to. Something else is going on here.

The best interests of the bank's stock holders are served by extending the loan and reducing the interest rate, in order to either minimize or eliminate losses. The judge recognized that the bank's representative wasn't dealing in good faith and apparently had more than a little to hide, so he slapped the bank down. This seems to be a completely appropriate approach in this situation.

You are making a lot of assumptions here about what is in the best interests of the bank and its shareholders. You assume that the only sources of revenue available are the value of the house or payments by the borrowers. That isn't necessarily the case. Is the bank going to receive TARP money to make up for the difference between the value of the house and the value of the loan? Will they receive a similar payment for modifying the loan?

You also assume modification of the loan is best for the shareholders. If the loan is modified the bank may have to carry the lost revenue on their balance sheet for the life of the loan. If they foreclose they can take one big hit in an already crappy year and be back to showing a profit in a few years. The latter alternative is usually better for the value of a company's stock, thus better for the company's shareholders.

Originally Posted by Papa_Complex

Here's the real issue: Banks were making loans to people who probably never should have qualified for them. They used predatory lending practises in order to do so. The loans were upside-down from day one. It doesn't take a stupid person to fail to understand finance. I've run into loan officers who don't.

The banks were using these essentially worthless loans in order to create profit in other arenas. If a regular business rather than a lending institution cooked the books the way that they did, the board of directors would be out on the street and the stock holders would be storming the gates. The stupid people were the excessively greedy ones who didn't think that this massive Ponzi Scheme would ever come crashing down on their heads.

If you want to absolve the borrowers of all responsibility for the current situation that is your purgative. I place the blame equally on the lenders and the borrowers.