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When the national mortgage settlement was initially announced, one of the criticisms that was thrown its way was that it only contained $5 billion in fines on banks for improper behaviour. The remaining portion, up to $35 billion, would come in the form of principal reductions and refinancings. And why was that a problem? Because, some said, the American taxpayer was on the hook for that $35 billion.
But when you boiled down those claims, they were really more about the fact that a lot of investors own mortgage-backed securities and a lot of people are investors, so we all lose a bit.
Now we there’s new evidence that the taxpayers are going to pay for over 80% of the settlement from the Financial Times:
“…a clause in the provisional agreement – which has not been made public – allows the banks to count future loan modifications made under a 2009 foreclosure-prevention initiative towards their restructuring obligations for the new settlement, according to people familiar with the matter.
The existing $30bn initiative, the Home Affordable Modification Programme (Hamp), provides taxpayer funds as an incentive to banks, third party investors and troubled borrowers to arrange loan modifications.”
That clause has left former-TARP Inspector General Neil Barofsky fuming: “It turns the notion that this is about justice and accountability on its head.”
The rift over this issue was intense, the FT reports, and caused a rift between state and federal officials. In the end, the states’ attorneys general lost the argument and banks will be allowed to receive Hamp credits and rewards for loans that are modified under the settlement.