‘Mortgage Settlement’ Funds Paying for Prisons, Not Foreclosure Relief
Needy states use housing aid cash to fund prisons, education shortfalls, and plug budgets
As part of a financial settlement over fraudulent mortgage practices earlier this year, some of the nation’s largest banks agreed to make payments to state government totaling $2.5 billion that would be earmarked for victims of wrongful foreclosure and other distressed homeowners. Instead, reports theNew York Times today, a majority of those funds are going to plug state budget shortfalls, leaving homeowners without recourse and validating critics who questioned the strength of the deal when it was announced in February.
Protesters staged a rally against home foreclosures in California on Tuesday outside the State Capitol in Sacramento. (Max Whittaker for The New York Times)
The total settlement was for $25 billion, but only a tenth of that was to come in the form of cash payment to the states. The remainder was to come in the form of “credits” for reducing mortgage debt and other loan activities.
Andy Schneggenburger, the executive director of the Atlanta Housing Association of Neighborhood-Based Developers, told the Times the decision showed “a real lack of comprehension of the depths of the foreclosure problem.”
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The New York Times: Needy States Use Housing Aid Cash to Plug Budgets
Only 27 states have devoted all their funds from the banks to housing programs, according to a report by Enterprise Community Partners, a national affordable housing group. So far about 15 states have said they will use all or most of the money for other purposes.
In Texas, $125 million went straight to the general fund. Missouri will use its $40 million to soften cuts to higher education. Indiana is spending more than half its allotment to pay energy bills for low-income families, while Virginia will use most of its $67 million to help revenue-starved local governments.
Like California, some other states with outsize problems from the housing bust are spending the money for something other than homeowner relief. Georgia, where home prices are still falling, will use its $99 million to lure companies to the state.
“The governor has decided to use the discretionary money for economic development,” said a spokesman for Nathan Deal, Georgia’s governor, a Republican. “He believes that the best way to prevent foreclosures amongst honest homeowners who have experienced hard times is to create jobs here in our state.”
Andy Schneggenburger, the executive director of the Atlanta Housing Association of Neighborhood-Based Developers, said the decision showed “a real lack of comprehension of the depths of the foreclosure problem.”
The $2.5 billion was intended to be under the control of the state attorneys general, who negotiated the settlement with the five banks — Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally. But there is enough wiggle room in the agreement, as well as in separate terms agreed to by each state, to give legislatures and governors wide latitude. The money can, for example, be counted as a “civil penalty” won by the state, and some leaders have argued that states are entitled to the money because the housing crash decimated tax collections.
Shaun Donovan, the federal housing secretary, has been privately urging state officials to spend the money as intended. “Other uses fail to capitalize on the opportunities presented by the settlement to bring real, concerted relief to homeowners and the communities in which they live,” he said Tuesday.
Some attorneys general have complied quietly with requests to repurpose the money, while others have protested. Lisa Madigan, the Democratic attorney general of Illinois, said she would oppose any effort to divert the funds. Tom Horne, the Republican attorney general of Arizona, said he disagreed with the state’s move to take about half its $97 million, which officials initially said was needed for prisons.
More than a dozen states across the country are doing their best to undermine the settlement by diverting the funds to other areas of their budgets.
But states are taking advantage of loose wording in the settlement to use the funds for, essentially, whatever they want, since a pot of free money is simply too tempting for state legislators who have faced years of budget woes. “There’s a lot of pressure on the budget,” said Arizona House Speaker Andy Tobin (R) to justify his state’s move.
As Enterprise Community Partners, an affordable housing group, has documented, party politics plays little role in these decisions, as the states diverting foreclosure settlement funds run the gamut from deep red to deep blue: Kansas, South Dakota
August 2, 2012 9:20 AM
Montana AG unveils foreclosure prevention program
HELENA, Mont. — Montana’s share of a national mortgage settlement will mostly be spent on foreclosure prevention, Attorney General Steve Bullock said Wednesday.
Montana received $5.8 million as part of the settlement with large mortgage companies over foreclosure abuses and fraud. Bullock said “greed” and “rampant abuse of our financial system” hurt millions of homeowners.
The rest will be used by the attorney general’s office to fight financial fraud and deceptive practices…..
- How do we know that these funds will not be used for a more pro-active prison state just as other states have investigated? Attorney General Steve Bullock is already dealing with the GOP concerning his campaign and allegations of the Democratic party paying for his spokesperson.
- We know that many states were left hanging when he did not follow through on the “Citizens United” with other Attorney Generals awaiting his call when he stated that he was going to call them back and never did. Instead they are using the “ballot” method within the state to try to govern this issue all the while ignoring the US Supreme Court.
- In my opinion there has been too much double talk within the state for me to trust this is what will be done with the funds from the National Mortgage Settlement. What happens if they don’t receive the funds for the new prison that Montana Department of Corrections is asking for or the increase that Montana Department Of Justice is looking for? What better way than to have funds sitting in the Attorney General’s Funds that will only increase a “prison for profit state” with a high incarceration rate already? There has been too many shady happenings within this system as seen by many articles when you start putting the pieces of the puzzle together.
- Montana citizens do some research. This is your future! This is your children’s future!
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