Mortgage troubles
Mortgage troubles - 
Listen To The Story

Kai Ryssdal: State attorneys general share some of the protesters' anger at banks -- if not the willingness to take to the streets. For a year or more all 50 state AGs have been trying to pull together a multi-billion-dollar settlement that would force banks to own up to some of their worst mortgage practices.

But the united front is faltering. California has pulled out of the talks, others are likely to follow. It was -- ironically enough -- three years ago today that the TARP went into effect, the $700 billion bank bailout that was supposed to bring the economy back from the brink, which it did, and help struggling homeowners, which it really didn't.

Marketplace's Alisa Roth looks at what went wrong -- and where things stand today.

Alisa Roth: Almost 3 million homeowners who are facing foreclosure have sought help from the government through a TARP-funded program. Only a quarter have managed to get their mortgage payments reduced.

Adam Levitin is a professor at Georgetown Law School. He says the program had a fatal flaw in the way it was constructed.

Adam Levitin: It tried to approach the housing market in a way that it helped homeowners it thought were deserving, rather than just saying we need to have a macroeconomic impact here, and it's about numbers not about morality.

The Treasury says the plan wasn't intended to prevent every foreclosure. The program offered cash incentives to mortgage servicers to reduce mortgage payments for borrowers. But the conditions made it hard for a lot of homeowners to qualify. The government has spent only about $2 billion of the $50 billion the Treasury set aside. Levitin says:

Levitin: The problem is that the allocation for housing, even if they spent every cent of it, was too small by an order of magnitude.

Though TARP was wound down a year ago, homeowners can still apply for help through the foreclosure prevention program.

Neil Barofsky was the inspector general for TARP until he resigned earlier this year. He says the housing market needed more than just reducing the interest payments on mortgages.

Neil Barofsky: There are just too many homeowners who owe more on their mortgages than their homes are worth. And the underwater mortgages can really only be addressed through a strong principle-reduction program.

Reducing the balance on home loans was never part of TARP. And has been a stumbling block for other efforts to resolve the housing crisis.

I'm Alisa Roth for Marketplace.

“I think the best compliment I can give is not to say how much your programs have taught me (a ton), but how much Marketplace has motivated me to go out and teach myself.” – Michael in Arlington, VA

As a nonprofit news organization, what matters to us is the same thing that matters to you: being a source for trustworthy, independent news that makes people smarter about business and the economy. So if Marketplace has helped you understand the economy better, make more informed financial decisions or just encouraged you to think differently, we’re asking you to give a little something back.

Become a Marketplace Investor today – in whatever amount is right for you – and keep public service journalism strong. We’re grateful for your support.