I am going to side with the individual borrower over the mortage banking industry here.
The bank made an investment which implies risk for a return of principle plus interest.
The loan originator received a commission on closing.
The loan was likely sold and maybe resold again to whoever services it now.
Companies like AIG then package mortgages securities for a fee and say they they are insuring them against default.
Values go up and up. Banks stop checking credit because they can actually profit from a default.
Those that want to buy are forced to pay huge sums as they compete for homes.
Finally it all collapses.
The foolish risky banks get rescued with funds from the government.
Risky AIG gets rescued.
The individuals still owe the full balance of the principle they borrowed.
So if some borrowers can negotiate a modification with the banks I do not feel sorry for the banks.
And I am not mad at these borrowers because at this point it doen't affect me. The collapse and bailout has already occured.
People take out mortgages once or twice a lifetime. Banks are in the business of making loans. They should know what they are doing.