Are US taxpayers bailing out big banks again?

U.S. taxpayers may be on the hook to bail out big banks -- again. The Financial Times is reporting that taxpayers will subsidize a large portion of the $25 billion mortgage settlement, which was broken down into two distinct pieces:

1. $5 billion in cash payments, of which $1.5 billion would go directly to approximately 750,000 borrowers who were wrongly or illegally foreclosed on between September 2008 and December 2011. This is the part where you have heard that borrowers who were wrongly foreclosed on could receive up to $2,000.

2. $20 billion in "credits" the banks will receive for principal write-downs and other aid to nearly 1 million homeowners at risk of default, up to $20,000 per loan.

It's part two that's coming under scrutiny. A clause in the provisional agreement allows the banks to use the government's Home Affordable Modification Plan, or HAMP, to cover the principal reductions. Neil Barofsky, the former special inspector-general of the TARP, described the clause as "scandalous." Says Barofsky: "It turns the notion that this is about justice and accountability on its head."

A little refresher on the HAMP plan: Banks receive payments from the government when they negotiate with underwater homeowners to avoid default. The taxpayer reimbursement is used to help cover the banks' costs to write down principal balances and keep homeowners in their homes. Last month, the Treasury department announced it was tripling the incentive payments to owners of mortgages who agree to reduce loan balances. The timing of the settlement is therefore perfect.

As the FT notes, "by reducing those balances under HAMP, investors -- including the banks who agreed the settlement -- now will receive cash payments of up to 63 cents on the dollar for every dollar of loan principal forgiven. They also will receive additional funds when borrowers keep current on their restructured mortgages."

For the consummate treatise on the mortgage settlement, check out Yves Smith's "12 Reasons Why You Should Hate the Mortgage Settlement" on her Naked Capitalism blog.

[buddybarrett]

I can't tell you how often I've heard from people who say, "I've played by the rules. I've never missed a mortgage payment even though my home is underwater. Where's my bailout?" It's been absolutely crazy that there's been help for those who don't pay, but not for those who do pay. Now there is help check 123 Refinance

[credibility2]

...taxpayers will be bailing out homeowners with this program...

[gagagagagag]

"...taxpayers will be bailing out homeowners who were defrauded by unregulated financial entities with this program..."

fixed that for you.

[rayward73446]

I would like to know just who in Government negotiated the second clause of the mortgage settlement? Then who approved the deal for the government?
We are sick and tired of giving big banks our hard earned tax money. They deserve no help at all from me or any other taxpayer, because their reckless behavior and greedy profit taking caused the housing meltdown. They profited on both sides of each mortgage deal, and any settlement shoud come from those profits, and not from taxpayers!

[Samlv]

I should have bought more house than I could afford, then defaulted. That way, I could get more money for free.

What I could not have done is become a bankster. That is basically only possible by birth. Dad's gotta know all the right people.

[TalMD]

DNC would hope this were "Bush's fault".

[BGOOCHY]

Look toward Goldman Sachs. You want to talk about an insurgency? They're it.

[ppaulville]

Obama, trying to reinflate the housing bubble and buy votes, one overextended homeowner at a time.

[tsigili]

Who did you THINK was going to pay for this? The banks? NO WAY!

The taxpayer is paying for it, as dictated by Obama! It is nothing but Robin Hood tactics against the people of this country!

Obama has to go!

[canoe2fish]

Didn't we already do this with virtually no success? Homeowners weren't helped last time, but lots of bankers made excellent profits investing the bailout money. Obama's goal is to help the rich get richer, and he's spending us into oblivion doing it. Think things are bad in Greece? Re-elect Obama and watch what happens here.

[Lerianis4]

Exactly right. The government should not put ONE PENNY into this, it should all come from the organizations who were totally irresponsible and doing the criminal things.

[antiglobal5]

I want to know which candidate would prosecute every person involved with mortgage fraud and more importantly which candidate would allow the banks to implode and collapse. That candidate would get my vote. It is time to declare war on the banks.

[credibility2]

...and any individual homeowner who was complicit with the fraud and there were plenty...let's also go after Fannie and Freddie, Dodd, Pelosi, Reid, Frank, etc....all of these were also complicit with the fraud and failure...