California Diverts Funds From Billion Dollar Settlement

Major Lenders Settle With Government For $25 Billion

In a landmark case, a group of several of the nation's largest real estate firms and lenders agreed to pay as much as $25 billion as part of a settlement in the robo-signing foreclosure scandal. The decision, which was made in February 2012, allotted several billion dollars for 49 state governments to fund foreclosure relief programs. According to recent reports, however, many states have chosen to ignore the agreement and use the funds for other purposes.

California's is just one of the 49 state legislatures who agreed to the settlement, with Oklahoma the lone state to opt out of the agreement. According to a recent report released by the consumer advocacy group Enterprise Community Partners, however, California joins New Jersey, Missouri, Alabama, Georgia, and South Carolina in choosing not to honor the terms of the settlement.

These six states, the report claims, have decided to divert almost their entire portion of the $2.5 billion awarded to state governments, using the funds to fill budget shortfalls or for other, non-home related purposes. Fourteen other states have chosen to use less than half of the money for its intended function, and five are using only two-thirds for foreclosure relief and housing programs.

Consumer Watchdog Groups Caution State Legislatures

In response to the actions of the various state legislatures, a co-author of the ECP report said he believed the decision to be morally bankrupt and short-sighted, focusing on short-term relief rather than the long-term returns investing in the housing market would create. In addition, he adds, the foreclosure scandal was disproportionately targeted at poor and minority groups, who were often most vulnerable to the robo-signing epidemic.

By refusing to use the funds for their intended purposes, the co-author argues, many of those hit hardest by the foreclosures would fail to have their suffering redressed. Putting money into the general treasury would fail to benefit them financially as much as targeted real estate relief programs. This financial relief would allow the state to raise more tax revenue in the future, making their decision not to utlize the programs ultimately myopic.

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