Missouri Gov. Jay Nixon has already laid claim to a chunk of the money from a settlement with the nation’s top mortgage lenders to avert a huge budget cut for public colleges and universities. He’s not the only politician eyeing the cash for purposes that have nothing to do with foreclosure. The $25 billion deal offers a tempting and timely source of funding for state governments with multimillion-dollar budget gaps. Although most of the money goes directly to homeowners affected by the mortgage crisis, the settlement announced this month by attorneys general in 49 states includes nearly $2.7 billion for state governments to spend as they wish. Some are pledging to use it as relief for struggling homeowners or to help related initiatives such as a Michigan plan to assist children left homeless by foreclosures. But several states are already planning to divert at least some of the money to prop up their budgets, and more will be wrestling with those decisions in the coming weeks. The diversion is reminiscent of the 1998 tobacco settlement in which states spent billions on projects that had nothing to do with curbing smoking.
“We shouldn’t be in the position of taking money that is intended to help consumers and their mortgage tribulations and putting that to another purpose,” said Joan Bray, a former Democratic Missouri senator who now is chairwoman of the Consumers Council of Missouri.
States that use the onetime payout for immediate expenses may also face the question of what to do next year when the money is used up. But officials in struggling states say they must deal with the most immediate problems first.
A federal judge in Washington could approve the final settlement by the end of February. Once that happens, money could begin flowing to states within a couple of weeks, arriving just as lawmakers are crafting budgets for the upcoming fiscal year. The mortgage money allowed Nixon to reduce his proposed funding cut for public colleges and universities from 12.5 percent to 7.8 percent – potentially easing student tuition increases. The money was “as we looked at it, relatively unfettered,” Nixon said. “Clearly the economy was affected all across the country by foreclosure challenges, and I think it is apt and appropriate to use those dollars to help restore some of the challenging cuts that I was forced to make.”
“It’s like taking tax money that was supposed to go to road improvements, and then suddenly the bridges are falling down and you don’t know what to do about it,” Suelmann said. “That money should go to something that can directly improve the situation with the housing program.”
When the tobacco settlement was reached, states initially promised to beef up public health with the $206 billion paid out over several decades. Instead, much of the money went to general government operations. State funding for tobacco-prevention programs has now fallen to its lowest level since 1999, according to recent estimates.
“The lesson is advocates have to be vigilant,” said Marie Cocco, a spokeswoman for the Campaign for Tobacco-Free Kids. Most states will probably use the money for mortgage-assistance hotlines, mediation between borrowers and lenders, legal aid and financial counseling, said Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, who was the lead negotiator on the settlement.
But, he added, officials “have to acknowledge that there has been damage done to states and their budgets and their services because of this mortgage crisis. … So states will have some flexibility in how they spend” the money.
California, which was one of the hardest hit states by the mortgage crisis, will receive the largest payment – about $430 million at a time when the state is facing a $9.2 billion deficit. A spokesman for Gov. Jerry Brown said no decision has been made on how to spend the money. Some consumer advocates say they will be watching closely to see where the payments are spent.
“As insufficient as it is,” said Kathleen Day, a spokeswoman for the nonprofit Center for Responsible Lending, “this money was intended to go directly to help struggling homeowners.”
Florida Realtors® News
Daily Briefing: Thursday, February 23, 2012
A service for members of Florida Realtors
