Arizona recently became the latest state to pull such shenanigans, diverting $50 million of its share of the settlement to balance its state budget:
At issue is the decision of the Legislature and Gov. Jan Brewer to tap $50 million from the $97.7 million the state received as part of its settlement with five mortgage-lending firms. They said they needed the money from the national mortgage settlement to balance the state budget. Initially, the intent was to use the money for prison construction. […]
The money comes from a settlement [Arizona Attorney General Tom] Horne’s office negotiated in February with five lenders, and it is intended to provide relief to people affected by the foreclosure crisis as well as to prevent poor lending practices.
“There’s a lot of pressure on the budget,” said Arizona House Speaker Andy Tobin to justify the move. But as Mark Ladov and Meghna Philip of the Brennan Center for Justice noted, that money could do a lot of good in a state that has been pounded by the housing crisis:
The final state budget sweeps $50 million from the foreclosure settlement into the state’s general fund. This is despite the fact that Arizona posted the highest foreclosure rate in the nation in March, with an astonishing one out of every 300 housing units receiving a foreclosure notice…The Arizona Housing Alliance estimates that $50 million could provide 75,000 troubled homeowners with housing counseling and 10,000 homeowners with legal assistance. That investment would more than pay for itself by strengthening communities, boosting property values and helping to restore the state’s economic health.
Instead, Arizona, like several other states, will simply siphon the money elsewhere, leaving homeowners to continue struggling on their own.