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Massachusetts AG Martha Coakley wants to require banks to consider loan modifications for delinquent borrowers:

“When loan mods are done right and when they are done sensibly, they are actually a very good tool to make sure people stay in their homes, and it is good for the banks,” Coakley said.

The legislation sponsored by Coakley would force lenders to study certain loans before foreclosure and offer workouts if they find that offering a loan modification would be more profitable than a foreclosure. The requirement would apply to homeowners with risky loans, such as subprime mortgages, that are likely to fail. [Emph. added]

One would think the banks would know what’s better for the banks than Coakley would. Meanwhile, somebody needs to explain to her about moral hazard. . . .