Already, three states have announced plans to divert some of their share of the $26 billion foreclosure fraud settlement with the nation’s five biggest banks away from helping homeowners (which is the money’s intended purpose), and towards other parts of their respective budgets. Wisconsin and Missouri are planning to use the money to plug budget holes, while Ohio wants to use the funding to demolish vacant homes.
And those states are evidently not the only ones planning to use the settlement funds for something other than helping troubled homeowners, as the Associated Press noted:
In Pennsylvania, where a fourth straight budget deficit is projected, Democrats are pressing the Republican-run attorney general’s office to use some of its $69 million payment to offset $2 billion in cuts to programs that benefit education, the elderly, disabled or poor. […]
Vermont plans to use $2.4 million from the settlement to help balance its budget. Maryland Attorney General Doug Gansler said about 10 percent of his state’s $62.5 million payment will be made available for the governor and lawmakers to spend as they choose.
It’s understandable, given the massive budget cuts that states have had to implement in the last few years to comply with balanced budget requirements during a recession, that there is a temptation for state lawmakers to use an unexpected windfall to plug budget holes. But as good as their intentions are, that is not the purpose of the settlement. Settlement money is meant to make up for bank malfeasance by reducing loan principal for underwater homeowners or to compensate families to lost their homes due to potentially wrongful foreclosure.
Members of the Florida congressional delegation have already penned a letter to Florida Attorney General Pam Bondi (R) in an attempt to head off a similar effort to siphon away funds, writing, “given the ongoing state of Florida’s housing crisis, we strongly urge you to use these settlement funds for housing relief, and resist any effort to divert the funds to close shortfalls in the state budget.” Hopefully more states don’t go down the road of the six listed above, and actually use the settlement money to alleviate the ongoing pain of the housing crisis.