By Cliff Montgomery – May 24th, 2012
Lawmakers in many U.S. states are quietly siphoning funds from a multi-billion dollar foreclosure settlement struck earlier this year between the Big Banks and the federal government.
The agreement is between five of America’s “Big Banks” and a coalition of federal and state officials. The settlement “resolved allegations that the banks deceived homeowners and broke laws when pursuing foreclosure,” recently stated ProPublica, an online news source.
Among other things, the foreclosure agreement divides up $2.5 billion in federal penalties among most U.S. states and the District of Columbia – those hardest hit get the biggest shares of the pie. But so far, the states have allocated a total of only $532 million as direct aid to struggling homeowners.
Oklahoma did not take part in the national mortgage agreement, but instead has worked to strike its own settlement with the Big Banks.
So are state officials breaking the law here? It’s hard to say. There appears to be some confusion as to whether or not states have the legal right to divert the foreclosure funds.
ProPublica declares that “the deal urged states to use that money on programs related to the crisis, but it didn’t require them to [do so].” However, an opinion piece published on May 10th by The Arizona Republic insists that the states are “violating the legal terms of the agreement, which unequivocally directs that the state[s] ‘shall’ use the funds for foreclosure-related purposes only.”
The Arizona Republic article may have the upper hand here – it was written by two officials from The Brennan Center for Justice at New York University School of Law.
Regardless, it’s clear that many states hardest hit by America’s mortgage meltdown are drawing off huge amounts of that settlement money and spending those funds on other matters.
For instance, Arizona has been one of the states struggling with an especially high foreclosure rate. But the state governor, Jan Brewer, has diverted around half of its settlement dollars to general use. California governor Jerry Brown is even worse – as the state buckles under an atrocious foreclosure crisis, he plans to use every last dime of settlement money to pay off California’s budget deficit.
Other states reeling from foreclosure worries – but still pilfering settlement funds – include South Carolina, Georgia, Maine and Wisconsin.
