Are you familar with foreclosures? Do you think banks make money on them? Banks typically have $25K in legal fees alone to foreclose on a home. During the months it takes, they are collecting no interest. Then the home is usually trashed and is sold in a distressed sale. Typically a foreclosed home sells from 25-50% of its market value. A foreclosure is a huge lose to the bank. It is no novel theory, talk to a banker sometime.
Then why foreclose, if it is not the best option for the bank? Since it clearly is their best option, I'm not going to cry when they exercise their best option. It's not like they don't have teams of accountants making scores of actuarial tables to assess foreclosure risks so that they can plan for such eventualities. Just because they made stupid loans does not mean that I should be happy that they will not suffer the consequences of their own stupidity. Our nanny-government already meddles far too much in our lives. Making private contracts subject to government "do-over" calls is not a wise way to encourage a healthy and vibrant economy. THAT takes the will to watch bad decisions come to bad results... but sadly, few Americans have the stomach for that kind of thing anymore, and they are more than happy to allow government to let them feel like bad consequences are a thing of the past.