Thursday, March 25, 2010

Bank of America Profits From Moral Hazard

Bank of America (BAC) announced a mortgage forgiveness program for those customers who are so underwater that it makes sense to walk away. You have to be two months in arrears to qualify. Plus most importantly the mortgage has to be worth more than the house.

The Pandora’s box that is opening concerns all the other mortgagee’s who are eking out the payments. Why should I pay will be the immediate question. How do I scam the system will be question number two. The question Bank of America executives will face will be how many customers will start to conspire to screw them. The bridge called moral hazard has been lost.

It will be a very very long time before their numbers are believable. But hey that’s what the regulator influenced them to do.