It continues to be hard to provide a full and thorough accounting for a national mortgage settlement where the terms are neither final nor public. This secret deal was agreed to, it seems, without state attorneys general having a full view of what they were signing onto. The fallout from that is likely on just beginning.
But in what surely will go down as one of the nastiest bits of the deal pushed through by the Obama administration, it is being reported by the Financial Times that modifications made under the taxpayer-funded HAMP program will count towards the banks’ principle reduction requirements.
US taxpayers are expected to subsidise the $40bn settlement owed by five leading banks over allegations that they systematically abused borrowers in pursuit of improper home seizures, the Financial Times has learnt.
However, 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.
Neil Barofsky, a Democrat and the former special inspector-general of the troubled asset relief programme, described this clause as “scandalous”.
“It turns the notion that this is about justice and accountability on its head,” Mr Barofsky said.
Both Shahien Nasiripour of Financial Times and Yves Smith note that since the whole point of providing HAMP payments to banks as an incentive to get them to make principle writedowns, HAMP should have remained outside of the scope of mortgage settlement. But as it’s structured, not only is it a part of it, we have taxpayers paying the banks to make modifications they’re supposed to be making to help homeowners.
This settlement looked pretty bad on the day it was announced. Sadly, it has only gotten uglier with age. That there is no final term sheet and the public is relying on sporadic leaks to understand what is actually in the tentative deal is a guarantee that these unwelcome surprises will continue, especially since it is the Obama administration which has pushed to weaken the deal:
But people familiar with the matter told the FT that state officials involved in the talks had had misgivings about allowing the banks to use taxpayer-financed loan restructurings as part of the settlement. State negotiators wanted the banks to modify mortgages using Hamp standards, which are seen as borrower-friendly, but did not want the banks to receive settlement credit when modifying Hamp loans. Federal officials pushed for it anyway, these people said.
What a sad joke.