Find the latest episode of "The Uncertain Hour" here. Listen

The mortgage settlement may cost taxpayers

Adriene Hill Feb 17, 2012

Adriene Hill: Turns out that $40 billion housing settlement between banks and states that the Obama administration announced last week — it could end up costing taxpayers. That’s according to a report in the Financial Times. We’ve got Neil Barofsky with us now to help explain. He’s the former inspector general of the TARP bailout. Good morning.

Neil Barofsky: Good morning.

Hill: So what do we know about the mortgage settlement today that we didn’t know before?

Barofsky: Well it turns out that the government is going to be providing credit to the banks, the mortgage servicers, that are the subject to the settlement for modifications that they do that are going to be partially funded by the United States taxpayer through the already existing government HAMP program.

Hill: So HAMP, that’s the Home Affordable Modification Program. Why does this matter?

Barofsky: It’s kind of crazy when you think about it. This mortgage settlement is supposed to be a settlement for this remarkable fraud that the banks and the servicers have created across the country — lying on affidavits, forging affidavits during foreclosures, all sorts of different abuses. And the idea behind the settlement, at least this is what we were told during the press conference, is was this was going to bring accountability. It was going to punish the servicers. It was going to be punitive and make them pay for this remarkable misconduct that occurred. And now we’re finding out that this so-called penalty is actually going to involve money flowing from the taxpayer into the banks. We’re bailing them out again!

Hill: So what does this tell us, then, about the true intent of the settlement?

Barofsky: Well I think what it does is it shows that the true intent of the settlement may differ from that which we were told during all the various press conferences. And instead of really, at the heart of this, being about accountability and punishment it seems like frankly a political whitewash during an election year. So it makes the Department of Justice look good. It makes the attorneys general look good. The banks are happy because they are going to get all the credit for this settlement while receiving money from the taxpayers. Really the only big losers are the taxpayers and, of course, the homeowners.

Hill: Neil Barofsky is the former inspector general of TARP. Thanks.

Barofsky: Oh great. Thank you.

Marketplace is on a mission.

We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.

Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?

Your donation is critical to the future of public service journalism. Support our work today – for as little as $5 – and help us keep making people smarter.