I think that you missed the whole point of my comment in the New York Times article, which is that securitization makes it harder to modify loans even when it is in the interests of BOTH the borrower and the investors. I was not just focusing on the borrower. Foreclosures can be expensive for investors and often it is in their interest not to foreclose, but rather to modify loans so that the loans are affordable to the existing borrowers. Furthermore, the whole subprime market has tanked in large part because of investor fears of excessive defaults leading to excessive foreclosures, lowering the value of bonds secured by the subprime loans. Excessive foreclosures are a problem not only for borrowers, but also for investors, for subprime lenders, for neighborhoods, etc.

If the loans were held by the originating lenders, it would be straightforward to modify the loans and so avoid foreclosures that are neither in the lenders’ nor the borrowers’ interest. What securitization does, however, is throw roadblocks in the way so that this potentially mutually beneficial loan modification is more difficult to put in place. Many in the financial industry recognize the dangers of these roadblocks and are trying to encourage more loan modifications. In the coming months, with many subprime loans resetting to higher payment amounts, we will see if their efforts are successful.