STOCK MARKET WATCH - Friday, 17 February 2012

[Demeter]

77. Quelle Surprise! Taxpayers Will Be Paying for Part of Mortgage Settlement

http://www.nakedcapitalism.com/2012/02/quelle-surprise-taxpayers-will-be-paying-for-part-of-mortgage-settlement.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

The whole purpose of a settlement is that a party pays damages to rid themselves of liability, and the amount they pay (and “pay” can include the cost of reforming their conduct) is less than what they expect to suffer if they were sued and lost the case (otherwise, it would make more sense for them to fight).

But in the topsy-turvy world of cream for the banks, crumbs for the rest of us, we have, in the words of Scott Simon, head of the mortgage business at bond fund manager Pimco, in an interview with MoneyNews, lots of victims paying for banks’ misdeeds:

“A lot of the principal reductions would have happened on their loans anyway, and they’re using other people’s money to pay for a ton of this. Pension funds, 401(k)s and mutual funds are going to pick up a lot of the load…

“Think about this, you tell your kid, ‘You did something bad, I’m going to fine you $10, but if you can steal $22 from your mom, you can pay me with that.’”

So not only is the settlement designed to shift the costs of the banks’ misdeeds onto already victimized investors, but taxpayers will also be picking up some of the widely touted $25 billion tab. Shahien Nasiripour tells us in the Financial Times that banks will be able to count future mods made under HAMP towards the total:

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.

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..

….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.

Alys Cohen, an attorney at the National Consumer Law Center, said that if the arrangement increased help, then it was ”good for homeowners in the long term”.

“But in the end the servicers are not really being punished. They’re getting off easy,” Ms Cohen said.

Although, as we all know, there is no final agreement, this appears to be the section of a January 19 term sheet published by the Wall Street Journal that sets forth how HAMP mods were to have been handled as of that date:

SEE LINK---IS THERE ANYTHING LARGER THAN A CLUSTERFUCK?