The much anticipated mortgage settlement brought some big news a few weeks ago when details were released. Some were pleased to find out there was a plan for a $26 billion payout for unlawful foreclosures and stubborn lending practices. However, critics soon surfaced pointing out many disappointing flaws inside the program’s details. Now there is more information that leaves even more of a bad taste in consumer’s mouths.
A Closer Look
Affected homeowners and consumers were under the impression that the banks were going to be paying out $26 billion for their part in the crimes against many homeowners, but a further look at the details revealed some disappointing facts. First, only $5 billion is allocated for actual payout funds to affected homeowners, an average of $1200 per family. Second, the remaining $20 or so billion is scheduled to be paid to the banks in the form of incentive credits for participating in mortgage principal write downs and loan modification options.
Who is really benefiting here? There is very little question that, not only are the banks not getting punished for their actions, but they are actually getting rewarded with incentives to do what they should have long ago. Further, news this week indicates that taxpayers will be responsible for footing the bill of 80% of the settlement’s funds.
The settlement reads, “…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 initiative, the Home Affordable Modification Program (HAMP), provides taxpayer funds as an incentive to banks, third party investors and troubled borrowers to arrange loan modifications.”