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FinalCall.com News
Business & Money
States snatch homeowner settlement money
By Nisa Islam Muhammad -Staff Writer-
Updated Jun 8, 2012 - 9:11:54 AM
(FinalCall.com) - To add insult to the injuries homeowners across the country suffered at the hands of greedy banks and lenders, numerous states plan to use millions in penalty funds secured in a major bank settlement for foreclosure wrongdoing to close budget gaps instead of helping homeowners.
“The state Department of Justice stood firm for over a year against the nation’s largest banks on behalf of California’s homeowners harmed by the foreclosure crisis. This effort resulted in an agreement that will provide billions in relief to California’s homeowners who are experiencing hardship. The agreement also required the banks to pay an additional $410 million to get homeowners the expert help they need to keep their homes,” said State Attorney General Kamala Harris in a statement.
“The Governor’s May Revision, however, proposes to redirect this $410 million from the state’s homeowners to other budget purposes. 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,” promised Ms. Harris.
According to ProPublica research and analysis some $974 million, or almost 40 percent of the settlement amount—has been redirected to other programs; while just $527 million has been set aside for new homeowner-oriented initiatives.
In Missouri, the state legislature used almost all of its $39 million to fund higher education, which had been slated for cuts. Virginia put the entirety of its $66.5 million into the state’s general fund without restrictions. Wisconsin Governor Scott Walker announced that the bulk of settlement funds—roughly $26 million—would go into the state general fund. Texas directed its $135 million to the state’s general fund, of which $10 million has been allocated for basic services to low-income Texans.
In California, hard hit by the foreclosure crisis, the governor’s budget revisions slashed $8.3 billion from government spending to close a $15.7 billion deficit.
In February, the major settlement declared that Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial would pay roughly $26 billion to compensate wronged homeowners in 49 states. Oklahoma had a separate suit.
Of the settlement, $2.5 billion would go to states to mainly fund housing counselors and legal aid organizations. Studies have shown homeowners stand a better chance of avoiding foreclosure if they get the help of a counselor. Homeowners facing foreclosure rarely have legal representation.
The money was divided among the states according to a formula that took into account the state’s size and how devastated the state was by the foreclosure crisis.
Attorney General Harris worked for over a year to get California as much money as possible from banks guilty of robo signing and other harmful mortgage servicing abuses. She even dropped out of the settlement when states were only going to get $4 billion.
Gov. Brown and other governors around the country have received complaints from all across their states in reaction to the news that the settlement money was being diverted.
“California’s dire budget situation claimed a new casualty in the governor’s May revise,” said Paul Leonard, California director of the Center for Responsible Lending. “The governor instead proposed to use the funds to reduce the state’s deficit rather than to help borrowers access settlement programs.”
“The $10 million in penalties paid by five big banks had been earmarked to help California borrowers access benefits under the settlement and bring to justice those servicers that broke state law. California needs every dime it can get to balance its budget. But mortgage settlement funds should be off limits.”
Housing advocates in Arizona filed a lawsuit May 24 against the state to stop it from taking $50 million from the mortgage settlement to help balance the budget.
“If the state wanted to really help get the state back on its feet and get its economy back on its feet, then the best way to do that would be to address this foreclosure problem head on, use these monies as they’re supposed to be used, to help people stay in their homes and to help communities to recover from the foreclosure crisis,” Valerie Iverson, executive director of the Arizona Housing Alliance, told reporters.
