The article cited that the example had been making his payments of $2,000 on time each month and desired to have them reduced by entering the program to lower them to $1,200 per month. To qualify for the program he was to stop paying his mortgage and go into default.
What’s wrong with this picture?
Seems like they simply wanted $800 per month to buy “stuff” and other goodies since it was obvious that they were able to pay the mortgage in the first place. I would be very interested to see what type (and how many) automobiles they had and what other “goodies” they were paying for on credit.
Of the many things I have done through my life, one of them was a loan officer for a finance company. In that capacity I made “consolidation” loans to people who could not manage their finances in a responsible way. Once the consolidation loan was made the the many payments grouped into one lower monthly payment, they immediately went out and started financing more debt simply because they had some extra money to make new monthly payments.
The problem was that our financial system has created the fact that people don’t ask “how much does it cost” instead, they ask “how much a month is it?”
You have inadvertently reversed causality here: the current practice is what it is because people think in terms of monthly payments, not the other way around. Markets take people's preferences as given and satisfy them. They don't form those preferences. People's values are formed elsewhere. What is this tenderncy to blame the system?