Taxpayers ease banksā?? settlement

WASHINGTON — Consumer advocates have complained that U.S. mortgage lenders are getting off easy in a deal to settle charges that they wrongfully foreclosed on many homeowners.

Now it turns out the deal is even sweeter for the lenders than it appears: Taxpayers will subsidize them for the money they're ponying up.

The Internal Revenue Service regards the lenders' compensation to homeowners as a cost incurred in the course of doing business. Result: It's fully tax-deductible.

Critics argue that big banks that were bailed out by taxpayers during the financial crisis are again being favored over the victims of their mortgage abuses.

The government is abetting the behavior by not preventing the deduction, said Sen. Charles Grassley, R-Iowa. The taxpayers end up subsidizing the Wall Street banks after the headlines of a big-dollar settlement die down. That's unfair to taxpayers.

Under the deal, 12 mortgage lenders will pay more than $9 billion to compensate hundreds of thousands of people whose homes were seized improperly, a result of abuses such as robo-signing. That's when banks automatically approved foreclosures without properly reviewing documents.

Regulators reached agreement this week with Goldman Sachs and Morgan Stanley. Last week, the regulators settled with 10 other lenders: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, MetLife Bank, PNC Financial Services, Sovereign, SunTrust, U.S. Bank and Aurora. The settlements will help eliminate huge potential liabilities for the banks.

Many consumer advocates argued that regulators settled for too low a price by letting banks avoid full responsibility for wrongful foreclosures that victimized families.

That price the banks will pay will be further eased by the tax-deductibility of their settlement costs. Companies can deduct those costs against federal taxes as long as they are compensating private individuals to remedy a wrong. By contrast, a fine or other financial penalty is not tax-deductible.

Taxpayers should not be subsidizing or in any way paying for these corporations' wrongdoing, said Phineas Baxandall, a senior tax and budget analyst at the U.S. Public Interest Research Group, a consumer advocate.

Spokesmen for several of the banks in the mortgage settlement didn't immediately respond to requests for comment. Bank of America declined to comment.