Big Banks Paid $110 Billion in Mortgage-Related Fines. Where Did the Money Go?

The largest U.S. banks were penalized for their role in inflating a mortgage bubble that helped cause the financial crisis. Who got that money?

The nation’s largest banks paid fines totaling about $110 billion for their role in inflating a mortgage bubble that helped cause the financial crisis. Where did that money go?

In New York, the annual state fair is using bank-settlement money to build a new horse barn and stables. In Delaware, proceeds are being used to subsidize email accounts for local police. In New Jersey, a mortgage firm owned by a former reality-television star collected $8.5 million as a reward for reporting a bank’s misconduct.

Banks also helped tens of thousands of homeowners with their mortgages in neighborhoods from Jacksonville, Fla., to Riverside County, Calif., funded loans for low-income borrowers and donated to dozens of community groups and legal-aid organizations.

Yet some of the biggest chunks of money stayed with the entity that levied the fines in the first place. Of $109.96 billion of federal fines related to the housing crisis since 2010, roughly $50 billion ended up with the U.S. government with little disclosure of what happened next, according to a Wall Street Journal analysis.

The Journal reviewed the terms of more than 30 settlements, filed public-records requests with a dozen agencies at the federal and state level and spoke to dozens of homeowners and others who obtained payouts, tried to or were otherwise involved with the distribution of the settlements. The results represent the most detailed breakdown yet of the billions paid out in the unprecedented deals.

The lack of detailed disclosure bothers some people. “The government has a responsibility to its citizens to be transparent about where its revenues are going,” said Aaron Klein, who focuses on financial regulation for the Bipartisan Policy Center in Washington, D.C. “When settlement funds just go into the black box of the general fund of the government, who is accountable?”

There is precedent for broad use of penalties. Funds from a 1998 deal for tobacco companies to pay states an estimated $200 billion over 25 years, intended to help states pay for smoking-related health costs, have also been used to balance state budgets and to fund school reading programs, after-school services and infrastructure.

In three major settlements analyzed by the Journal—$13 billion from J.P. Morgan Chase, $7 billion from Citigroup and the $16.65 billion from Bank of America—banks were censured for misleading investors about shoddy mortgage securities. The Justice Department played the lead role in doling out pieces to other agencies and states involved in the litigation, according to people involved in the lawsuits.
ENLARGE

Seven states, most with attorneys general who played important roles in previous litigation against the banks, participated directly in those settlements and received funds for special projects and local residents.

In New York, Gov. Andrew Cuomo is using proceeds to help replace the Tappan Zee Bridge north of New York City, renovate the Port of Albany and provide high-speed Internet access in rural communities.

Last year, when Mr. Cuomo announced in a speech that the New York state fair would get $50 million for an overhaul, Troy Waffner, the acting director of the fair, jumped up and down and called his mother. The fair will use the funds for improvements like a bigger concert stage, making the grounds more accessible to the disabled and an equestrian facility with warm-water washing stations for the horses.

Some New York housing advocates said more money should have been directed to areas directly affected by the financial crisis.

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