Bank of America's "Home-Loss" Issue

The Financial Times noted today that Bank of America (BOA) and the SEC have issues over "home loss" provisions. Now, we're not talking about the thousands of homes BOA has tried to railroad into hasty, occasionally illegal, foreclosure. The federally bailed-out bank has been cited for its very generous housing subsidies for its senior management. In essence, "home loss" in this context means that BOA execs, when they move from one locale to another for the bank, don't lose money on their house sale or most activities related to the transaction.

Looking under the deal's hood reveals interesting details. In the case cited in the FT story, one BOA exec received $2.6 million "to cover relocation costs, including a mortgage subsidy, closing fees, and tax liabilities, according to the bank's 2009 proxy. In the event (the executive's) old home, which was bought by an independent relocation company, was resold for a loss, BofA, according to the proxy, will bear those costs." Nice work if you can get it, don't you think?

Unstated in the story was whether the mortgage came from Countrywide, which merged with BOA during the 2008 financial fever.

What's even more outrageous than the subsidies' scale is BOA's rationale defending them. Apparently BOA compared the housing payoff to giving employees a computer or a smart phone. Such items are not included in proxies for shareholder approval, so why should a multi-million dollar housing package? Doesn't everyone get a laptop, phone, and six-bedroom colonial?

At no point did BOA spokespeople acknowledge that taxpayer money was involved. One never, ever got a sense that senior bank management felt responsible for transforming a solvent enterprise into an insolvent institution. Foreclosures, in which BOA remains immersed, were something that happened to other people, and to other people's money. BOA execs were different: they ensured their peace of mind with a mortgage subsidy.

Yes, it's nice to have a roof over one's head. It's even better to have equity shareholders, the federal government, or someone else, pay for that roof. Much better.