The banks will hold on until the stock market starts to punish them for underperforming assets being on their books.
Until the ROA starts to drop and their stock price drops because people see it they’ll hold on. The reason is simple, when they let go, their refiance business, which is still fairly good and more importantly, full of desperate people will dry up. When they let go, they will crater the market. And if they crater the market, they will increase defaults because people will walk away when they are 40% underwater and their ARM reset pushes their payment to over half their net pay.
