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Friday, October 21, 2016

Billion Dollar Bait & Switch: States Divert Foreclosure Deal Funds

Billion Dollar Bait & Switch: States Divert Foreclosure Deal Funds

by Paul Kiel and Cora Currier, ProPublica


States have diverted $974 million from this year’s landmark mortgage settlement to pay down budget deficits or fund programs unrelated to the foreclosure crisis, according to a ProPublica analysis. That’s nearly forty percent of the $2.5 billion in penalties paid to the states under the agreement.

The settlement, between five of the country’s biggest banks and an alliance of almost all states and the federal government, resolved allegations that the banks deceived homeowners and broke laws when pursuing foreclosure. One part of the settlement is the cash coming to states; the deal urged states to use that money on programs related to the crisis, but it didn’t require them to.

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. You can see the detailed state-by-state results here, along with an interactive map. Many states told us they’ll be finalizing their plans in the coming weeks. We’ll be updating our breakdown as the results come in.

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.

Overall, only about $527 million has been earmarked for new homeowner-focused programs, but that number will go up. A number of large states — in particular New York, Nevada, Illinois, and Florida — have indicated they’ll be dedicating substantial amounts of the funds to consumer programs, but haven’t yet produced a final breakdown.

Iowa Attorney General Tom Miller, who led the coalition of attorneys general who negotiated the deal, argued that only a very small portion of the settlement was being diverted and it will “overwhelmingly” benefit homeowners. The centerpiece of the settlement is a requirement that the banks earn $20 billion in “credits” by helping homeowners in various ways — from reducing principal on underwater homes to bulldozing empty ones. Because the system awards only partial credit for certain actions, Miller said the settlement would bring more than $20 billion in benefits to consumers — he estimated $35 billion. Critics contend those sorts of numbers far overstate the benefits to consumers, because the banks can claim credit for some activities that were already routine.

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.

Compared with the billions going to consumers, Miller contended, $1 billion going to states’ general funds was minimal. It was always expected that the states would divert some of the money to their general expenditures, he said.

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. The money was divvied up among the states according to a formula that took into account how large the states were and how hard they were hit by the crisis.

As you can see from our breakdown, 15 states have so far allocated over half their amounts to consumer-focused efforts. But the uses range widely. In Ohio, $75 million has been set aside to destroy some 100,000 abandoned homes. In Minnesota, the state is setting up a fund to compensate victims of the banks’ foreclosure abuses.

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  • i call this stealing not diverting

    • I would add lying to the stealing but then coming from Republicans we have learned to expect nothing but that haven’t we.

  • majong13

    If the states were given the money for this purpose and then used it for other purposes then they should be made to give all the money back.

  • making up for lost property tax revenue

  • Just another of Wisconsin Governor Scott Walker’s many lies. He has diverted the funds to his campaign to defeat the recall effort by the citizens of Wisconsin.

  • another sell out for americans. another bail out for the f…….. banks. this is less than deman lost while asleep at the wheel. more bs

  • joyscarbo

    My family and I have been a victim of this. The banks/lenders string along struggling homeowners by having them apply for multiple (several!) home loan modification programs and then turn them down for loan modifications. What homeowners don’t know is that the bank/lender gets tax breaks and incentives for each application. It’s all a scam to create false hope to people who are struggling the most.

  • mainman61

    Hmm up the ass with no lube from the banks and the states tooo!!!!!! Yipeeeee!!!!! Where is the president who should be having big business and the states each in a headlock with them turning blue? Wait, the could only happen if someone hadnt taken a shit and lost their spine down the toilet!!!!

  • It looks all the states except California have Republican governors that are using the settlement money for things that have nothing to do with housing and helping people stay in their homes or to compensate the people that lost their homes because of the Banks greed. People if the actions of these governors the majority of which are Republicans doesn’t show you how little this party cares about the middle class or the poor nothing will. These states that are using the settlement money to close their budget gaps wouldn’t have these big gaps if they stop giving corporate welfare to big corporates and tax cuts to the rich while raising taxes on everyone else then the settlement money could be used to help the people that the banks stole from.

    • You have to look at who wrote this article. All states got funds and most are diverting them, it is not just states with Republican govenors who are diverting funds.

  • The feds are showing again how they had out money hand over fist and make no restrictions. I do know some states on thier own are doing some things to help people with foreclosures. My brother applied to be put in a lottory as a displaced worker and won one year of house payments paid. The state is also requiring mediation before foreclosure this may be from some of these funds.

  • Foreclosure is big business and many banks are making a killing. The entire loan modification program was designed to help the banks. They keep people in the homes until they find someone to buy it and as mentioned below they also get a cut from the government for these loan modifications and they foreclose on people anyway. (True story: Bayview lending sold loan to Kondour Capital. Kondour arranged a loan modification and then did not take the home out of foreclosure even though it received all payments under the plan. They foreclosed on the home on the original foreclosure date and wrote the owner a letter saying they had to be out in a few days. The person had to hire an attorney and did get some funds called cash for keys. Everything Kondour did was illegal but do people losing their homes have money to hire attorneys, if they did they wouldn’t be losing their homes. Kondor knows this and I can imagine how many they have taken advantage of. They have quite a few complaints on the rip-off report. I really have problems with anyone who thinks bailouts saved American. They sold out America.

  • Having seen Virginia’s governor outright robbing Peter to pay Paul in these budget scams, the idea that the state dictatorship would just reallocate the whole settlement is, sadly, anything but a surprise.