In late October 2012, federal
prosecutors in New York formally accused Bank of America of “carrying out a
scheme, started by its Countrywide Financial unit, that defrauded
government-backed mortgage agencies by churning out loans at a rapid pace
without proper controls. In a civil suit, prosecutors seek to collect at least
$1 billion in penalties from the bank as compensation for the behavior that
they say forced taxpayers to guarantee billions in bad loans.” The guarantee
can be considered a moral hazard, in that Bank of America (or Countrywide) was
not the party on the hook. In other words, the mortgage service company had an
artificial incentive to produce mortgages riskier than would otherwise be the
case because they would be guaranteed by another party (i.e., American
taxpayers).
The full essay is at "U.S. Government Sues Bank of America."
The full essay is at "U.S. Government Sues Bank of America."