States diverting foreclosure settlement funds

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(CBS/AP) The landmark foreclosure deal reached last month was filed in federal court Monday, and state governments are already planning how they'll use the money. Unfortunately, it won't all be going to distressed homeowners.

When it was announced, the pact was criticized for not offering enough help to homeowners. It turns out they may not even get the meager amount that was first discussed.

Each state's portion of the settlement, which in its entirety is reported to be somewhere between $25 and $26 billion, is supposed to be used for principal reductions and refinances. But with states struggling to close budget gaps and fund programs, many governments are planning to divert money from the settlement to other areas of their budgets.

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Georgia, which is among the top ten states for foreclosures, is the latest to announce it's jumping on the diversion bandwagon. Gov. Nathan Deal plans to use the money to close budget gaps in areas unrelated to housing. "The governor is open to considering the suggested uses of the [foreclosure settlement] money," Deal's spokesperson told The Atlanta Journal-Constitution, "but we have to weigh those against the need for teachers, law enforcement officers and building transportation infrastructure."

Gov. Deal is not alone. Leaders in Missouri, Pennsylvania, Vermont and Wisconsin are already planning to divert some of the money to prop up their budgets.

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Missouri Gov. Jay Nixon plans to use nearly all of the state's $41 million settlement payment to help shore up the budget. Nixon told the Associated Press the money was "as we looked at it, relatively unfettered. 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."

In Pennsylvania, where a fourth straight deficit is projected, some of its $69 million may be used to offset $2 billion in cuts to programs that benefit education, the elderly, disabled or poor.

Vermont plans to use $2.4 million from the settlement to help balance its budget, and Maryland Attorney General Doug Gansler plans to make roughly 10 percent of his state's $62.5 million payment available for the governor and lawmakers to use as they choose.

In Wisconsin, Gov. Scott Walker wants to use $26 million to plug a state budget hole because the foreclosure crisis has had a "direct impact on the economy."

Not surprisingly, the diversion of funds intended to help homeowners has ruffled a few feathers. "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," Bob Suelmann, a St. Louis homebuilder, told the Associated Press. "That money should go to something that can directly improve the housing program."

Joan Bray, a former Democratic Missouri senator and current chairwoman of the Consumers Council of Missouri, also criticizes the move: "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."

Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller -- the lead negotiator in the settlement -- believes most states will use the money for homeowner assistance-related spending. But, he told the Associated Press, "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]."

Despite Greenwood's optimism, it's possible we'll see more states diverting funds after the settlement is approved by the U.S. District Court. The settlement calls for lending reform and more oversight of lending and foreclosure processes, but those changes do little to help homeowners who have already lost everything or are severely underwater.

[SpeakingSpirit]

I seen this coming, it was all a show to start off with. Ag's have had these cases on their desks for at lease 3 years and never did anything about them. This is how our country works. We hope for better even though we know it is not going to happen. What makes the States different from the banks that received money promising to help home owners in trouble and then turned around and screwed them out of there homes. That is part of what this money was about. Come election time they will all be bragging about how they sued Wall Street and got money into the State and the public will believe them. They are all in bed together and why the Banks where never afraid of breaking Laws.

[SUZAMBA]

One hand washes the other? Why does this not surprise me. So why take the time to even push this issue, if the monies weren't going to help those that it should have! Our government at work........what else is new!

[moretruthnow]

The federal government could sue these states that are not using the funds appropriately. It is one thing if they are really doing something else with the funds such as for teachers, police and firemen as well as very essential business. But if it is republican governors refusing to help homeowners as the funds were designated and fattening their pockets, the government should sue them for their pilfering these federal funds.

[rightbehind]

Big state government is the problem. We need less powerful state government. State government is communism. So long as they can charge property taxes on our homes and businesses we will never own them. We are only tending them for the state. The only way we can fix this is with a strong Federal government and force our representatives to outlaw state property taxes.

[tomanyt]

That will NEVER happen.

[PW9]

Really makes ya want to step up and pay "your fair share" doesn't it? I think we should just STOP. Stop paying taxes, stop paying banks - civil disobedience. Make them do the right thing if they want our money.

[AverageStan]

Now this sham settlement is seen for what it really is - a shell game. It's effectively nationalized state budgets, with investors - 401ks holders, pensioners - now on the hook for the bad banks' behavior.

This is crazy.

[dzaffina]

haven't read past the headline, but i bet the states doing this is all republican states. like perry in texas and other gop states that diverted the stimulas money away from their intended use,to create jobs, they used the money for other purposes and then complained the stimulas didn't create jobs. i'll go read the article now.

[jimbom121]

Its a mixture, Missouri, Vermont and Maryland (to a lesser extent), in addition to Wisconsin, Penn & Georgia.

[ppaulville]

This is why the government should not be involved in things like home loans. The states did the exact same thing 10 years ago with the tobacco settlement money - diverted it all to their general funds, when it was supposed to be for tobacco education. LOL. The banks should refuse to release the funds because they were told the settlement was NOT a fine and would be used for mortgage relief.

[jimbom121]

Most of the mortgage mess was from private mortgages.

[bradkt1]

Isn't this called theft? The money doesn't belong to the states. It belongs to the consumers who got ripped off.

[Osprey4]

Like giving a drunk money to make him promise to stop drinking.