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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.

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