This is why you don’t hand state governments a blank check. Rather than using it to help troubled homeowners, several states used at least $1bn of the $2.5bn they received from a settlement with mortgage lenders to pad their budgets or fund pet projects, according to a new USA Today report.
The $2.5bn settlement was paid by JPMorgan Chase, Citigroup, Bank of America, Wells Fargo and Ally Financial as part of the National Mortgage Settlement, to settle states claims that the banks were using shady mortgage lending practices and making errors that resulted in some people being foreclosed upon unnecessarily, according to the report. The banks will also provide an additional $51bn in relief to homeowners as part of the settlement.
While states have no say in the disbursement of the $51bn, they have “wide discretion” in how the $2.5bn – intended to lighten the impact of the housing crisis – is spent, USA Today reported.
But instead of spending that money to help troubled borrowers, several state legislatures decided they could find better uses for the cash, according to a list compiled by the National Conference of State Legislatures:
- Virginia received more than $66.5 million in the settlement. Of that, only $7 million went to a housing trust fund. The remainder of the money was dumped into the state’s general fund.
- Nebraska received more than $8.4 million. The entire amount was placed in the state’s “rainy day” fund; none of it was earmarked specifically for housing relief.
- South Carolina got more than $31.3 million. The legislature gave $10 million to the Department of Commerce and dumped the rest in the state’s general fund.
- Georgia received almost $99.4 million. None of that went to housing relief. Instead, the entire amount has been earmarked for “economic development” such as business assistance grants.
- Texas received more than $134.6 million. Of that, $10 million was placed in the state’s judicial fund, and the rest went into the general fund.
It’s not all bad news, however. Several states are using the money to ameliorate the housing crisis. Rhode Island, which received about $8.5 million, put the entire amount into the Rhode Island Foreclosure Protection Program. Colorado, which received more than $50 million, put nearly all of it into loan modification programs, affordable housing and homeowner counseling. The remainder went to legal aid programs. Arkansas put $9 million of its $12.8 million into its housing finance program; the remainder went to legal aid.