Many of the lenders who helped fuel the subprime mortgage boom are now receiving billions in taxpayer money to modify those same loans, according to a new report by the Center for Public Integrity.
Countrywide Financial, formerly considered the nation's largest subprime lender, thus far is eligible to receive about $5.2 billion, according to Treasury Department data. The firm originated at least $97.2 billion in high-interest loans from 2005 to 2007, CPI reports.
Other companies eligible include subsidiaries of AIG, Lehman Brothers and Merrill Lynch. At least $70 billion in taxpayer money has been committed to helping AIG, according to figures compiled by ProPublica, a nonprofit investigative news organization. Lehman Brothers filed for bankruptcy last September, and Merrill Lynch was bought Bank of America last year.
The payouts are part of the Obama Administration's Making Home Affordable program, a $75 billion effort to reduce mortgage payments for struggling borrowers by providing mortgage servicers, lenders and investors with taxpayer subsidies. The plan commits to helping three to four million homeowners avoid foreclosure, provided they meet certain conditions. As of July 31, less than 9 percent of eligible delinquent borrowers had been helped. The Administration has asked mortgage servicers to double the number of home mortgage modifications by Nov. 1.
Up to $50 billion of the program's funds comes from TARP; the rest is provided by Fannie Mae and Freddie Mac. To put that into context, since the financial crisis began the government has committed a total of more than $172 billion in bailout funds to AIG, Bank of America and Citigroup.
Earlier this year CPI, a nonprofit investigative news organization, analyzed federal home mortgage data and produced a list of the 25 financial firms that originated the most high-interest mortgages from 2005 to 2007. For various data-related reasons, those mortgages are not technically "subprime", though many researchers - including CPI - use high-cost mortgages as a proxy for calculating subprime figures.
Comparing that list to the one produced by the Treasury Department, CPI noted that of the top 25 participants in the Making Home Affordable program, "at least 21 were heavily involved in the subprime lending industry."
Last year Countrywide agreed to put up about $8.4 billion to modify troubled home mortgages in a settlement reached with 11 state attorneys general. The states had sued alleging consumer fraud; it's the largest predatory-lending settlement in history.
As of July 31, Bank of America was servicing at least 800,000 delinquent mortgages eligible under the Administration's program; less than four percent of those had been helped.