They are not wrong. They’re exactly right, from every angle.

But having watched banks and other lenders screw up through 3 down cycles, both in negotiating with borrowers with impaired collateral and in managing REO inventory, I’m pretty confident it won’t happen on any significant scale. Lenders are terrified of setting any kind of precedent in negotiating loan modifications. So they lose. And borrowers lose. Which further damages market stability. They will never learn.