By Shaila Dewan, The New York Times
17 May 12
undreds
of millions of dollars meant to provide a little relief to the nation’s
struggling homeowners is being diverted to plug state budget gaps.
In a budget proposed this week, California joined more
than a dozen states that want to help close gaping shortfalls using
money paid by the nation’s biggest banks and earmarked for
foreclosure
prevention, investigations of financial fraud and blunting the ill
effects of the housing crisis. California was awarded more than $400
million from the banks, and Gov. Jerry Brown has proposed using the bulk
of that sum to pay the state’s debts.
The money was part of a national settlement valued at
$25 billion and negotiated with five big banks over abuses in their
mortgage and foreclosure processes.
The settlement, reached in February after a year of
talks and intervention by the Obama administration, was the
second-largest in history involving the states, trailing the tobacco
industry settlement, and represented the first large-scale commitment by
banks to provide direct aid to borrowers.
As part of the settlement, the banks agreed to pay the
states $2.5 billion, money intended to help homeowners and mitigate the
effects of the foreclosure surge. But critics complained that this was
the only cash the banks were required to pay — the rest comes in the
form of “credits” for reducing mortgage debt and other activities. Even
that relatively small amount has proved too great a temptation for
lawmakers.
Only 27 states have devoted all their funds from the banks to housing programs,
according to a report
by Enterprise Community Partners, a national affordable housing group.
So far about 15 states have said they will use all or most of the money
for other purposes.
In Texas, $125 million went straight to the general
fund. Missouri will use its $40 million to soften cuts to higher
education. Indiana is spending more than half its allotment to pay
energy bills for low-income families, while Virginia will use most of
its $67 million to help revenue-starved local governments.
Like California, some other states with outsize
problems from the housing bust are spending the money for something
other than homeowner relief. Georgia, where home prices are still
falling, will use its $99 million to lure companies to the state.
“The governor has decided to use the discretionary
money for economic development,” said a spokesman for Nathan Deal,
Georgia’s governor, a Republican. “He believes that the best way to
prevent foreclosures amongst honest homeowners who have experienced hard
times is to create jobs here in our state.”
Andy Schneggenburger, the executive director of the
Atlanta Housing Association of Neighborhood-Based Developers, said the
decision showed “a real lack of comprehension of the depths of the
foreclosure problem.”
The $2.5 billion was
intended to be under the control
of the state attorneys general, who negotiated the settlement with the
five banks — Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and
Ally. But there is enough wiggle room in the agreement, as well as in
separate terms agreed to by each state, to give legislatures and
governors wide latitude. The money can, for example, be counted as a
“civil penalty” won by the state, and some leaders have argued that
states are entitled to the money because the housing crash decimated tax
collections.
Shaun Donovan, the federal housing secretary, has been
privately urging state officials to spend the money as intended. “Other
uses fail to capitalize on the opportunities presented by the
settlement to bring real, concerted relief to homeowners and the
communities in which they live,” he said Tuesday.
Some attorneys general have complied quietly with
requests to repurpose the money, while others have protested. Lisa
Madigan, the Democratic attorney general of Illinois, said she would
oppose any effort to divert the funds. Tom Horne, the Republican
attorney general of Arizona, said he disagreed with the state’s move to
take about half its $97 million, which officials initially said was
needed for prisons.
But Mr. Horne said he would not oppose the shift
because the governor and the Legislature had authority over budgetary
matters. The Arizona Center for Law in the Public Interest has said it
will sue to stop Mr. Horne from transferring the money.
In California, Attorney General Kamala D. Harris had
played hardball
in the settlement negotiations, holding out until the very end for a
deal guaranteeing that a large share of the benefits would go to
California, and then trumpeting her success in a news conference and a
flurry of interviews with national news outlets. So Mr. Brown’s revised
budget put her in an awkward position.
“While the state is undeniably facing a difficult
budget gap,” she said in a statement, “these funds should be used to
help Californians stay in their homes.” Both officials are Democrats.
When asked if Mr. Brown could legally appropriate the
money, which is supposed to be held in a special fund “for the benefit
of California homeowners affected by the mortgage/foreclosure crisis,” a
spokesman for Ms. Harris declined to comment.
Just last week, Ms. Harris announced plans to give
about half the money to groups that provide housing counseling and legal
assistance to homeowners — groups whose budgets have shrunk while
demand for their services grows. The other half would be used primarily
for investigation of mortgage-related crime.
States using some or all of their money for housing
have designated it for a wide variety of programs, like a small fund for
low-interest loans to build housing in low-income neighborhoods, in
Virginia, and Ohio’s sweeping plan to demolish abandoned property.
In New York, Attorney General Eric T. Schneiderman
stepped in with $15 million in settlement money for housing counseling
and legal assistance when state support ran out last month, and plans to
spend the bulk of its $130 million on similar programs. North Dakota
will use its tiny allotment, $1.9 million, to provide housing to police
officers and emergency responders in its booming oil-field counties,
where shelter is scarce.
Using the money for other purposes is shortsighted,
housing advocates warn. “If you leave homeowners hanging out there to
dry, then in the short term maybe you help to meet the budget gap this
year,” said Maeve Elise Brown, the executive director of Housing and
Economic Rights Advocates, based in Oakland. “But in the long term the
more people we have going through foreclosure, the worse it’s going to
be for our economy as a whole.”
In some states, redirecting the money could have a
racially discriminatory effect, said Alan Jenkins, the executive
director of the Opportunity Agenda, which supports homeownership,
because in some cities black homeowners disproportionately lost their
homes, Mr. Jenkins said.
“If you dump all of these funds into the general
coffers, the African-American homeowners are not going to benefit in any
real way because they represent such a small percentage of the larger
state,” Mr. Jenkins said.
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