The national mortgage settlement that Virginia Attorney General Ken Cuccinelli signed-on to (with some reservations) is turning out to be a pig in a poke.
According to the Financial Times, the penalties imposed on the big mortgage writers will be paid for by taxpayers:
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 (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”.
And if that wasn’t bad enough, the Reason foundation has looked at the deal and found this:
A $1.5 billion settlement has been set up for anyone foreclosed on by one of the five banks between 2008 and 2011. They can put in a claim and receive a check for roughly $1,500 to $2,000-without even having to prove they were robo-foreclosed.
Beyond that, the rest of the settlement is a grab bag of politically popular goodies. As much as $12 billion has been committed for mortgage modifications, $5.2 billion for short sales, unemployment forbearance, or relocation assistance, $3 billion for mortgage refinancing promises, and $1 billion specifically from Bank of America for cheating the Federal Housing Administration.
And the attorneys general themselves got a $2.5 billion slush fund to spend however they want. You have to love lawyers looking out for themselves.
You will recall that in announcing Virginia’s participation in the deal, Cuccinelli said the costs of this deal were outweighed by its benefits to the commonwealth (and the state, whose share of the spoils is nearly $70 million).
Except the benefits appear to be little more than political:
A cursory glance at the story makes it look like justice has been served and relief given to homeowners, victims of the banks lending them more money than they could afford. But the state attorneys general get to walk away with a big headline ($26 billion!) and a perceived victory over the banks. That was the point.
It was the point. And you, gentle taxpayer, are going to be getting the bill.
The question now becomes whether Mr. Cuccinelli will remain as a signatory to this wretched mess — and looming political liability.