States Using Settlement Funds for Borrowers as General Funds

BLAME THE BORROWER, TAKE THEIR MONEY AGAIN

Editor’s Comment: As though it was bad enough that the banks, who suffered no loss, got the bailouts, the federal reserve money, the insurance proceeds and the proceeds of credit default swaps and other credit enhancements — all without credit to the investors who put up the money in the first place which would lower the debt due from borrowers — the States are now taking the settlement money for themselves. Instead of providing some value to borrowers who were obviously injured by these bad loans that are completely or partially paid off, the States are saving their budgets rather than their citizens. With a government like that, who needs it?

Maine Becomes Third State to Divert Foreclosure Settlement Funds Away from Homeowners

Following Scott Walker in Wisconsin and Jay Nixon in Missouri, the state of Maine will be using money from the foreclosure fraud settlement not to help suffering homeowners, but instead to pump up the state’s general fund–patching budget holes blown by those states’ right-wing governors.

Dave Dayen at FireDogLake notes:

There’s nothing illegal about this; the new executive summary posted at the National Mortgage Settlement site says this about payments to the states:

Payments to the States

The remaining settlement funds, approximately $2.5 billion, will be paid to the participating states. The funds may be distributed by the attorneys general to foreclosure relief and housing programs, including housing counseling, legal assistance, foreclosure prevention hotlines, foreclosure mediation, and community blight remediation. A portion of the funds may also be designated as civil penalties for the banks robo-signing misconduct.

That’s essentially a license for states to take the money as a “penalty” and put it into their general funds. Three out of 50 have already done so. We’ll continue to track who else will engage in this, and clearly there will be more. You honestly think Rick Scott or Rick Perry won’t use this money to plug their budget holes?

 Walker was the first one, unsurprisingly, to announce that his budget would be saved by the foreclosure settlement (should we at least be grateful that he’s not trying to slash more out of his state employees’ pockets?) but the speed with which his move was imitated definitely lends credence to Dayen’s point.

The foreclosure settlement isn’t just meant to be a “penalty” for the banks’ criminal behavior–it’s far too small to do justice to that idea. It’s meant to provide support for those struggling with the housing crisis, in danger of losing their homes. As Travis Waldron at ThinkProgress noted, these states have other places they could generate revenue “without taking money from programs meant to help struggling homeowners.”