Moral Hazard in the Bank Settlement
Here’s the deal. Mortgage borrowers who are underwater are divided into two categories.
Category 1: Underwater and delinquent.
Category 2: Underwater, not delinquent.
Those in Category 1 get to write down their loans and re-finance. Those in Category 2 only get to re-finance.
Hm. That’s rewarding bad behavior. The government is feeding stray cats.
Ha, ha, ha on those who play by the rules.