1. The 737 is so ubiquitous that they didn't want to create something new. They wanted old 737 pilots to be almost automatically certified to fly their new aircraft, and they wanted all the 737-oriented equipment to keep working. So, instead of making a new design, they opted for the easier, cheaper and faster "lipstick on a pig" approach.

2. It was the quicker option. The A320neo was a real gut punch to Boeing, and the execs wanted their response out, fast. Reusing the existing design was a faster and cheaper approach for them.