U.S. Taxpayers To Help Subsidize Banksters' Obligations Under Recent Foreclosure Fraud Settlement
- 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.
- The deal, agreed last week, calls for Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial to pay about $5bn in cash fines and to reduce monthly payments and loan balances for distressed US borrowers by as much as about $35bn.
- 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, or 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.
- BofA, for instance, will be able to use future modifications made under Hamp towards the $7.6bn in borrower assistance it is committed to provide under the settlement. Under Hamp, the bank will receive payments for averting borrower default and reimbursement from taxpayers for principal written down.
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- [P]eople 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.
For more, see US taxpayers to subsidise $40bn housing settlement.
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