Why needless foreclosures happen anyway

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John X had his home foreclosed this year. It cost the investor who held the mortgage about $40,000 to foreclose. It would have cost only $25,000 to make the mortgage affordable to the borrower through a reduction in the interest rate. Modifying the loan contract in this way would have kept X in his home and saved the investor money. This is not an isolated case; preventable foreclosures are happening all around us. Note that I am using a cold-blooded business, not a bleeding-heart definition of "needless foreclosure." Under my definition, if it costs an investor more to foreclose a mortgage than to make it viable, it is a needless foreclosure. I am not counting the additional human toll exacted by foreclosures, which can be very high. Mortgage contracts are modified, at some cost to the investor, in order to prevent the larger cost of a foreclosure later on. Loan modifications include adding the unpaid interest to the loan balance, called "interest capitali...