May 24, 2012: This post has been updated to clarify Virginia’s use of its settlement funds.
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.
In two of the states most affected by the foreclosure
crisis, California and Arizona, the attorneys general had intended to use most
of their funds on homeowner-related efforts before the governors intervened.
After California Attorney General Kamala Harris prepared a
proposal to spend the money on counselors, lawyers, and other consumer-related
efforts, Gov. Jerry Brown released a proposed revised budget last week that used
the state’s $411 million for existing housing programs. In other words, the
money would just be used to help fill the state’s $16
billion budget deficit. Harris opposes the move, which still must make its
way through the state legislature for it to become law.
The $25 billion settlement: Breaking it down
- $20 billion in credits:
- $5 billion in cash payments:
In Arizona, the attorney general had similar plans. Then
state lawmakers and the governor took $50 million of the $98 million coming the
state’s way. Although the budget legislation stated that the money should be
used to fund departments related to housing and law enforcement, there will be
no new spending. Housing advocates are readying a lawsuit to stop the transfer
and expect to file in the coming month, said Valerie Iverson, Executive
Director of Arizona Housing Alliance.
Several other large states have diverted most or all of the money:
•
Georgia directed all of its $99 million to
programs designed to attract new businesses. A spokesman for the governor said,
“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.”
•
In Missouri, the state legislature used almost
all of its $39 million to fund higher education, which had been slated for
cuts. The attorney general’s office kept $1 million for hotlines and outreach
related to the settlement.
•
Virginia put the entirety of its $66.5 million into the state’s general fund without restrictions. In March, Democrats proposed a budget amendment that would funnel all of the money to foreclosure prevention and homeownership programs, but it was voted down. $7 million was ultimately allocated to a state fund for housing programs. While the appropriation was not explicitly tied to the settlement in the final budget, lawmakers involved in the negotiation said that the funding was as a result of the settlement.
•
Wisconsin Governor Scott Walker announced soon
after the settlement was finalized that the bulk of it—roughly $26
million—would go into the state general fund. Two million went
to an economic development fund, including funds for demolition in blighted
neighborhoods. Many state Democrats and housing advocates opposed
the plan, but failed to block it.
•
Texas directed its $135 million to the state’s
general fund, of which $10 million has been allocated for basic services to
low-income Texans. The legislature won’t formally decide what to do with the
rest until next January because it meets only once every two years. John Henneberger, co-director of Texas Housers,
an affordable housing group, said that in speaking to legislators, advocates
had “received no assurances that this money will be used according to the
purposes of the settlement.”
ProPublica will continue to track how the funds are being
used in the coming months. Check out our breakdown and interactive map for
updates.
