How States Are Using Mortgage Settlement Funds

States - excluding Oklahoma - received $2.5 billion as a part of the $25 billion National Mortgage Settlement with the country’s five largest loan servicers. Most of the money is intended for homeowner relief and programs aimed at preventing future foreclosure abuse. Some states, however, are using the settlement money to offset existing costs rather than creating new programs to aid homeowners.

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The National Mortgage Settlement is a landmark joint state-federal settlement with the country’s five largest loan servicers—Ally/GMAC, Bank of America, Citibank, JPMorgan Chase and Wells Fargo. The settlement will provide as much as $25 billion in relief to distressed borrowers and direct payments to states and the federal government. The states have received $2.5 billion as a direct payment for “purposes intended to avoid preventable foreclosures, to ameliorate the effects of the foreclosure crisis, (and) to enhance law enforcement efforts to prevent and  prosecute financial fraud.” Some recent reports, however, indicate that many states are allocating their share of the settlement to plug budget holes instead of investing in homeowner relief and programs aimed at preventing future foreclosure abuse.

 
According to recent data from ProPublica and other sources, the states are spending their settlement funds on things ranging from softening cuts in education to attracting new businesses to the state in order to create more jobs.1
  • California, which received the largest portion of the settlement—$410 million out of $25 billion, is diverting all of the money to its general fund.
  • Georgia and Missouri received $138 million combined and are transferring all of the settlement money to their general funds. In Missouri, most of the money is being allocated to higher education, which had been slated for cuts. Georgia used all of the funds to finance programs to attract businesses to their state.
  • South Carolina, which received $31 million, used most of the money for economic development, with no specific details released yet.
Many states have allocated a significant amount of their funds to programs to help struggling homeowners, but some are more general, such as consumer education initiatives or foreclosure hotlines.
  • Ohio has received $93 million and is allocating $75 million in demolition grants to help stabilize and improve communities by removing blighted and abandoned homes; the rest will be spent on consumer programs and financial fraud investigation.
  • Illinois and Colorado, which received $156 million combined, are allocating most of the money to a variety of consumer-related programs, including direct aid to homeowners and legal aid funding programs.
  • Massachusetts chose to distribute most of the funds through the HomeCorps program, which will fund legal aid and counseling organizations, among other initiatives to aid homeowners.
  • Arizona, which received $98 million, is allocating about 50 percent of the money to the general fund and still has not decided on how to spend the rest.
  • North Carolina, which received $61 million, will diversify its distribution by allocating about 50 percent of the funds to the North Carolina Housing Finance Authority for counseling and legal aid, and another $14 million to various state agencies for investigating and prosecuting financial fraud. The remaining funds, about $16.5 million, were diverted to the general fund.
  • Twenty states plus the District of Columbia have not decided how to allocate their funds. A number of states’ attorneys general have indicated potential uses for the money, but have yet to provide specific breakdowns for spending.
 
References:
 

Mortgage Settlement Funds

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