Why didn't banks move sooner on foreclosures?

Simple - there wasn't much in it for them. From the NYT:

The banks had few financial incentives to invest in their servicing operations, several former executives said. A mortgage generates an annual fee equal to only about 0.25 percent of the loan's total value, or about $500 a year on a typical $200,000 mortgage. That revenue evaporates once a loan becomes delinquent, while the cost of a foreclosure can easily reach $2,500 and devour the meager profits generated from handling healthy loans. "Investment in people, training, and technology -- all that costs them a lot of money, and they have no incentive to staff up," said Taj Bindra, who oversaw Washington Mutual's large mortgage servicing unit from 2004 to 2006. And even when banks did begin hiring to deal with the avalanche of defaults, they often turned to workers with minimal qualifications or work experience, employees a former JPMorgan executive characterized as the "Burger King kids." In many cases, the banks outsourced their foreclosure operations to law firms like that of David J. Stern, of Florida, which served clients like Citigroup, GMAC and others. Mr. Stern hired outsourcing firms in Guam and the Philippines to help.

This really goes back to the boom years, when banks weren't paying much attention to the collecting and processing of monthly payments from homeowners - otherwise known as mortgage servicing. When the real estate bubble popped, they couldn't begin to handle the onslaught of delinquencies. That helps explain why homeowners were having such a hard time getting someone on the line - or why paperwork kept disappearing. So this is a story where there's plenty of fault to go around: Borrowers knowingly went well beyond their means in purchasing a home and lenders were ill-prepared for the inevitable fallout.