States are siphoning funds from the $25 billion National Mortgage Settlement to close budget gaps and to finance spending unrelated to assisting homeowners.
“It’s ironic that Governor Jerry Brown would propose taking money from people struggling to pay off mortgage debt because he’s struggling to pay off the state’s debts,” said California Public Interest Research Group (CALPIRG) legislative director, Pedro Morillas.
The state won’t get its hands on the Golden State’s $18 billion allotment, only a special $410 million penalties payment.
While the national multi-billion dollar settlement funds are earmarked to fund programs for struggling homeowners and those wronged by foreclosure abuses, lenders also agreed to pay an additional penalty of $2.5 billion direct to the states. States can use the penalty money as they see fit.
“Instead of providing long term solutions for struggling homeowners, the settlement money is going to serve as a short-term, stopgap in the budget,” said Morillas.
Nearly half the states have redirected penalty money to their general fund. The amount redirected totals nearly $1 billion of the $2.5 billion penalties fund, according to an investigative report “Billion Dollar Bait & Switch: States Divert Foreclosure Deal Funds” from ProPublica, an independent, non-profit, investigative journalism newsroom working in public interest.
Of the $2.5 billion in penalties, so far, only about $545 million has been earmarked for homeowner aid, with $1 billion yet to be earmarked either to states general fund or homeowner aid, according to ProPublica.
In California, the penalty money grab particularly peeved Attorney General Kamala Harris, who fought hard for California’s majority share in the settlement. Harris was also the driving force behind the state’s Homeowner Bill of Rights and has been a consumer advocate for other homeowner causes and consumers in general.
“While the state is undeniably facing a difficult budget gap, these funds should be used to help Californians stay in their homes. I plan to work with the Governor and Legislature toward a balanced budget that honors our obligations to California’s homeowners,” she said in a prepared statement.
Unfortunately, siphoning some or all of the penalty funds is pretty much a done deal in California and other states including, Arizona, Florida, Texas, Georgia, Virginia and others.
“Many of us have spent the last decade working to protect and serve families who were facing predatory lending, the tactics of unscrupulous lenders and the game playing of a greed-driven real estate market,” said Lori Gay, president of Neighborhood Housing Services of Los Angeles County.
She added, “The (national) settlement negotiated by Attorney General Harris gave us some hope that relief might finally come to families. To have the Governor work to strip away pieces of the settlement which would help families regain stability and dignity speaks volumes regarding the low-level dealing that goes on behind closed doors. Will real people, real families and the voters ever get dealt a fair hand?”
Examine how your state is using the national settlement’s penalty funds on ProPublica’s ongoing interactive map, “Where Are the Foreclosure Deal Millions Going in Your State?”
The “Billion Dollar Bait & Switch” story is the latest in a series: “Foreclosure Crisis: Banks and Government Fail Homeowners.”