There is a logic in both bankers and borrowers holding back from taking action on the unsustainable mortgage problem in the knowledge that the legal framework that will govern this shortfall is due to change in the near term through bankruptcy reform and the introduction of a non-judicial debt settlement mechanism.
The case of sovereign debt: insurance and incentives  To some extent, a borrower’s income and hence his ability to repay debt is subject to forces outside his control. A bank, for example, cannot perfectly control its cash flow, which depends on what its competitors do and on general economic conditions, among other factors.