States Only Spent Half Of Foreclosure Settlement Money Helping Homeowners


foreclosures 3x2About 44 percent of the $2.5 billion that banks sent to state governments as part of a 2012 legal settlement over “robosigning” foreclosure abuses has been redirected to rainy day funds, budget balancing efforts, and economic development funds rather than spent on helping distressed homeowners wronged by the banks.

State lawmakers have been announcing plans to redirect the foreclosure money since shortly after the settlement was announced. Wisconsin was first, followed quickly by Missouri, Ohio, Pennsylvania, Maryland, Vermont, Georgia, South Carolina, and Arizona.

The Pew States Project has now pulled together a full picture of how states are spending the money, finding that only $1.4 billion out of the $2.5 billion total had gone to housing-related purposes.

“Texas put almost its entire $135 million share into its general fund, then spent it on largely non-housing activities,” Pew States reports. Florida spent $35 million assisting homebuyers with down payments and about another $200 million on a variety of legal and developmental projects relating to the housing market, if not directly to robosigning victims. But it also sent almost $75 million to the state’s general fund to help balance the budget, according to data compiled by the National Conference of State Legislatures. Georgia and Nebraska committed their entire settlement payouts to non-housing purposes, which were $99 million and $8 million, respectively.

The payments to states represent a tiny portion of the total dollar value of the National Mortgage Settlement (NMS), as the settlement’s defenders indicated to Pew States. But it’s worth remembering that the settlement itself is something of a sham. The small portion of the settlement that did get sent directly to homeowners was doled out in checks so tiny that many underwater homeowners didn’t even bother cashing them. It has failed to change the abusive practices of the mortgage servicing industry, which the authorities in charge of the settlement tacitly acknowledged last week in a series of “tweaks” to the settlement rules. Furthermore, the design of the settlement made it easy for banks to game the rules such that they actually spent far less helping homeowners than the tens of billions of dollars touted by settlement supporters.