Billion Dollar Bait & Switch: States Divert Foreclosure Deal Funds

While the settlement between five of the country's biggest banks did not require states to use the settlement money on programs related to the crisis.

Courtesy: financialconcierge.map2finance.com

(NEW YORK CITY) - A ProPublica analysis of the landmark mortgage settlement reveals states have diverted $974 million of the funds to pay down budget deficits or fund programs unrelated to the foreclosure crisis. Paul Kiel and Cora Currier explain, "That’s nearly forty percent of the $2.5 billion in penalties paid to the states under the agreement."

While the settlement between five of the country's biggest banks, states and the federal government resolved allegations that the banks deceived homeowners and broke laws when pursuing foreclosure, it did not require states to use the settlement money on programs related to the crisis.

"ProPublica contacted every state that participated in the agreement (and the District of Columbia) to obtain the most comprehensive breakdown yet of how they’ll be spending the funds," explain Kiel and Currier. "What stands out is that even states slammed by the foreclosure crisis are diverting much or all of their money to the general fund. In California, among the hardest hit states, the governor has proposed using all the money to plug his state’s huge budget gap. And Arizona, also among the worst hit, has diverted about half of its funds to general use. Four other states where a high rate of homeowners faced foreclosure during the crisis are spending little if any of their settlement funds on homeowner services: Georgia, South Carolina, Wisconsin, and Maine."

The reporters add, that "Overall, only about $527 million has been earmarked for new homeowner-focused programs, but that number will go up...The banks will only pay $5 billion in actual cash penalties under the agreement. The largest chunk, $2.5 billion, goes to the states’ attorneys general, while about $1 billion goes to the federal government. $1.5 billion will be sent to borrowers who lost their homes to foreclosure during the crisis in the form of $2,000 payments."

However, Iowa Attorney General Tom Miller, who led the coalition of attorneys general who negotiated the deal, told ProPublica, compared with the billions going to consumers, $1 billion going to states’ general funds was minimal. "But when announcing the deal, state and federal officials said the states’ $2.5 billion would 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, and homeowners lack legal representation in the overwhelming majority of foreclosure cases."

You can see the full story here - http://www.propublica.org/article/billion-dollar-bait-switch-states-divert-foreclosure-deal-funds - and the detailed state-by-state results here, along with an interactive map. And you can read more of Kiel's award-winning foreclosure reporting here.