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.

Source:http://rogerhollander.wordpress.com/2012/05/16/mortgage-settlement-funds-paying-for-prisons-not-foreclosure-relief/

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

http://www.alternet.org/story/155477/shafted%21_why_are_homeowners

_still_left_to_struggle_against_big_banks_alone?page=0%2C0

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.

http://www.cbsnews.com/8301-505247_162-57485176/montana-ag-unveils-foreclosure-prevention-program/