Earlier this year, the federal government, the District of Columbia and 49 state attorneys general negotiated a financial agreement with five of the country’s largest banks: Ally (formerly GMAC), Bank of America, Citi, JPMorgan Chase, and Wells Fargo.
The settlement stemmed from allegations of fraud and other improprieties in the selling and servicing of home mortgages in the years preceding the Great Recession.
Except now it appears some of the states are not acting in good faith in the aftermath of getting so much money from the settlement.
Part of the $25 billion settlement, whose intent was to provide some restitution to homeowners who were deceived by the banks or lost their homes when the housing market collapsed, was allocated to the states. According to the National Mortgage Settlement’s Executive Summary, $2.5 billion is permitted to be sent to the attorneys general for foreclosure and housing programs. In addition, “A portion of the funds may also be designated as civil penalties for the banks rob-signing misconduct.”
But a study by Enterprise Community Partners, an affordable housing and community development non-profit, reveals that of the money already allocated to the states, more than half of the total (about $988 million) is already pledged to various state’s general funds, pet projects and other budget lines and initiatives. That is, the money is not set aside for housing and foreclosure-related activities, as intended in the settlement. Some $588 million remains to be disbursed.
Ohio, Tennessee among Good States
The good news is that 23 states are using most, if not all, of their share of the fund for housing, minus a 10 percent cap that goes to their attorney general’s office as a civil penalty. And 14 states are putting less than half of their allotment toward its intended uses. Several states have already hijacked most or all of their funding for other purposes.
States on the good list include:
- Ohio, which is planning to spend one fifth of its funds on innovative foreclosure prevention programs and the remaining monies on programs to demolish, rehab and/or replace vacant or blighted housing stock.
- Tennessee, which is spending its $40 million on financial assistance and counseling for struggling homeowners.
- Connecticut whose money is going to legal aid, counseling, foreclosure hotlines, and mortgage modification programs.
California, Arizona among Chief Offenders
Foremost in the sticky finger category is California, a state that has been one the hardest hit by the housing meltdown. It has approximately $360 million to spend on housing and legal aid, consumer protection and other programs designed to mitigate the damage caused by the foreclosure crisis.
However, Gov. Jerry Brown decided in May to use its funds to plug a hole in the state’s $15.7 billion budget gap. Across the border, the Arizona legislature voted to allow $50 million of its settlement share to cover a similar budget deficit.
- In South Carolina, the legislature overrode a gubernatorial veto and voted to use all of its funds to pay for a program that incentivizes companies to relocate to the state.
- Georgia is committing its $99 million to various economic development programs.
- $124 million will go to the general fund in Texas.
- $21.9 million will go to Utah’s general fund.
- New Jersey will filch $72.1 million for its general fund, although Gov. Chris Christie says that the money will eventually go to “deal with housing problems.”
Florida is in legal limbo. Its $334 million share is in escrow until a dispute between Pam Bondi, the state’s attorney general and the state legislature is settled in early 2013. Bondi, a Republican, wants to use the money for its intended purposes. The Republican-controlled legislature wants to decide for itself how the fund should be allocated.
Oklahoma was the only state not to join the settlement.
While the “good” states should be applauded for their fealty to the settlement’s intentions, the “bad” states should be chastised for their unethical raiding of monies that should be going to help individuals who have suffered the most from the five banks’ egregious activities.
Adding insult to injury is no way to run a government, ostensibly of the people, for the people and by the people.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].