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Homeowners Must Compete with State Governments for Mortgage Settlement Relief Funds

As states have begun allocating funds from the National Mortgage Settlement, news reports are surfacing that indicate some state governments intend to use the funds for unintended purposes. Enterprise Community Partners, a housing nonprofit organization, released a report on the topic in October. The Report indicates that a majority of states are using the funds from the mortgage settlement as intended, but the largest recipients are not.

Of the $25 billion from the Mortgage Settlement, $2.5 billion was designated for direct payments to the states to use in preventing foreclosures, stabilizing communities, and regulating financial fraud. As of October, the funds had been allocated as follows: $966 million was apportioned to housing and foreclosure-related activities (the intended use for the funds), $988 million was diverted to states’ general funds for non-housing uses (not the intended use for the funds), and $588 million was not yet allocated.

Attorneys general were instrumental in negotiating the Mortgage Settlement and how the funds were to be allocated. However, governors and legislators have attempted to influence how the funds will be used. Florida was the second-largest recipient of funds–$334 million. Until recently, the sum remained in escrow pending the resolution of a dispute between Florida’s Attorney General, Pam Bondi, and the Florida Legislature over who has the authority to distribute the funds.

Pam Bondi recently came to an agreement with the Florida Legislature to use $260 million for homeowner relief, the other $74 million has been committed to Florida’s general revenue fund. With 78% of the money that was allocated to Florida going to its intended purpose, Florida might appear to have relatively favorable plans for homeowners. On the other hand, California, the largest recipient of funds has decided to apportion all of the funds to its general revenue fund–more specifically, California’s governor decided to use the funds to go toward the state’s $15.7 billion budget gap.

Pam Bondi stated that $60 million for homeowner relief will go foreclosure-related legal assistance, foreclosure prevention, home buyer or renter assistance, counseling, and other forms of help. But, for those of us doing the math, a concern arises with respect to the $200 million for which Pam Bondi gave the Florida Legislature power to appropriate. Thus, while Pam Bondi might make favorable statements as to how the funds might be allocated, she has given up the power to uphold her statements. The Florida Legislature could follow California’s lead by using the funds to supplement budget shortfalls in Florida. The fate of the $200 million remains in the hands of individual Senate members.

Parker and DuFresne

Parker and DuFresne