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Jan 14 / Jonathan

The Money to “Save” Homeowners Is Handed to Banks

A useful reminder from Dean Baker: look behind the rhetoric. Cui bono?

The Money to “Save” Homeowners Is Handed to Banks

NPR reported on Representative Barney Frank’s effort to ensure that a substantial portion of the money from the second $350 billion in the TARP go toward helping homeowners. The proposals that purport to save homeowners would in fact hand large amounts of money to banks. They involve paying banks far above market prices for underwater mortgages. The benefit to homeowners is that they would be allowed to stay in their homes, possibly with zero equity. (Some proposals also give the homeowner a small equity cushion.)

NPR and other news outlets should be reporting who gets the money under these proposals. In many cases, banks may be paid tens of thousands of dollars to leave a homeowner in a home in which they have no equity. At a time when Congress is debating extending the State Children’s Health Insurance Program at a cost of $3,000 per kid, it is not clear how many kids’ health care they or the public would be willing to sacrifice to pay a bank to leave someone in a home in which they have no equity.

—Dean Baker

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