Maybe you recall that the big banks were forced by a settlement to pay $25 billion for their robo-signing schemes that violated contracts with specific homeowners. The banks paid the governments, not the victims.
Do you think the money is now being used to help home owners? If you are that dense, you are dumb enough to believe that the $250 billion paid by the cigarette companies to the states went to victims of tobacco, or maybe for anti-smoking campaigns “to protect our children.” Less than 3% of the tobacco settlement went for anti-smoking campaigns. North Carolina had the most creative use of the money. It funded the construction of tobacco warehouses.
It’s happening again, according to the New York Times. The money is being used to fill the budget gaps.
In a budget proposed this week, California joined more than a dozen states that want to help close gaping shortfalls using money paid by the nation’s biggest banks and earmarked for foreclosure prevention, investigations of financial fraud and blunting the ill effects of the housing crisis. California was awarded more than $400 million from the banks, and Gov. Jerry Brown has proposed using the bulk of that sum to pay the state’s debts.
The settlement was second in history only to the tobacco settlement.
Governors don’t want that kind of money going to waste — “waste” being defined as “what the settlement money was justified for.”
As part of the settlement, the banks agreed to pay the states $2.5 billion, money intended to help homeowners and mitigate the effects of the foreclosure surge. But critics complained that this was the only cash the banks were required to pay — the rest comes in the form of “credits” for reducing mortgage debt and other activities. Even that relatively small amount has proved too great a temptation for lawmakers.
Only 27 states have devoted all their funds from the banks to housing programs, according to a report by Enterprise Community Partners, a national affordable housing group. So far about 15 states have said they will use all or most of the money for other purposes.
Rick Perry’s Texas sent $125 million to the general fund. Missouri will use $40 million to bankroll its colleges. Indiana is more creative. It will use its money to pay energy bills for low-income families.Virginia will send over $60 million to local governments.
Georgia will use the money to attract businesses to the state.
“The governor has decided to use the discretionary money for economic development,” said a spokesman for Nathan Deal, Georgia’s governor, a Republican. “He believes that the best way to prevent foreclosures amongst honest homeowners who have experienced hard times is to create jobs here in our state.”
Translation: “The governor wants to get taxpaying businesses into the state, which will hire people, who will pay taxes.”
It’s all about taxes.
The $2.5 billion was intended to be under the control of the state attorneys general, who negotiated the settlement with the five banks — Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally. But there is enough wiggle room in the agreement, as well as in separate terms agreed to by each state, to give legislatures and governors wide latitude. The money can, for example, be counted as a “civil penalty” won by the state, and some leaders have argued that states are entitled to the money because the housing crash decimated tax collections.
The money is not going to solve the housing crisis.
Diverting the money away from housing is resented by groups that want government money for housing. Everyone wants free money, and now the diversion of the loot is creating turf wars.
Using the money for other purposes is shortsighted, housing advocates warn. “If you leave homeowners hanging out there to dry, then in the short term maybe you help to meet the budget gap this year,” said Maeve Elise Brown, the executive director of Housing and Economic Rights Advocates, based in Oakland. “But in the long term the more people we have going through foreclosure, the worse it’s going to be for our economy as a whole.”
In some states, redirecting the money could have a racially discriminatory effect, said Alan Jenkins, the executive director of the Opportunity Agenda, which supports homeownership, because in some cities black homeowners disproportionately lost their homes, Mr. Jenkins said.
“If you dump all of these funds into the general coffers, the African-American homeowners are not going to benefit in any real way because they represent such a small percentage of the larger state,” Mr. Jenkins said.
Tossing that much money in front of special-interest voting blocs creates a feeding frenzy. “The money is owed to us!”
Meanwhile, the housing bubble remains popped.