Why is it so difficult to get a mortage modification?

I have wondered why the banks would not want to help keep homeowners in their homes. It would seem that it would be cheaper to modify the mortgage than to foreclose and short sell the property for a massive loss. There is a video that helps to explain this. Is this how a managed economy really works? Have we created a scenario where it is more profitable for the banks to foreclose than to work with the homeowner?