Some States Are Using Mortgage Deal Funds To Close Budget Gaps. Who Gets Screwed? Who ALWAYS Gets Screwed?
Two states have already announced that they won’t be using all of their share of the $25 billion allocated in Thursday’s historic foreclosure settlement to pay its intended recipients — the homeowners and borrowers who saw the housing market collapse beneath their feet.
Instead, in some areas, a share of those dollars is likely to be diverted to state budgets, in a bid to offset some of the massive deficits that states have been struggling with since the economic downturn, according to reports.
In Wisconsin, Governor Scott Walker and state Attorney General J.B. Van Hollen have announced plans to use $25.6 million of the settlement money — about 18 percent of the $140 million Wisconsin will get in total — to plug holes in the state’s budget, according to the Milwaukee Journal Sentinel. As the MJS notes, this is a reversal of Walker’s previous opposition to using legal settlements to close budget gaps.
And, in a bombshell announcement, investigators charged Walker appointees Tim Russell and Kevin Kavanaugh with embezzling $60,000 intended for a veterans support organization called Operation Freedom.
(Russell’s attorney, Michael Maistelman, had no comment.) The staffers used the money to pay for vacations to Hawaii and the Caribbean, wedding parties, and pro-Walker campaign websites. In a strange twist, Russell’s boyfriend, Brian Pierick,
was also caught by John Doe investigators and charged for the crime of sending sexually-explicit text messages to a then-17-year-old high school student, among other things. I guess he got confused about which holes to plug. His attorney did not respond to a request for comment. What a bunch of freaking creeps.
Meanwhile, in Missouri, state Attorney General Chris Koster has said that he plans to put $40 million of Missouri’s settlement money — about 20 percent of the total $196 million — into the general state fund, apparently in response to Governor Jay Nixon‘s call for a stronger college and university budget, Stateline reported. I don’t understand how we can structure such a deal without conditions on its use, but we do it every time; the TARP bailout, the AIG save, the Banking bailout, and now this. One can only conclude that this whole affair is a very private club and only bankers, private equity, hedge funds and politicians can belong.
In the wake of Missouri and Wisconsin’s announcements to use the settlement funds for purposes other than directly assisting borrowers — and with similar announcements possibly forthcoming from other states — critics have begun comparing Thursday’s deal to the 1998 tobacco settlement that saw some of the country’s largest tobacco companies agree to pay $246 billion over the next 25 years to fund public-health initiatives.
Much of that money has since been spent on other things, according to the Campaign for Tobacco-Free Kids, which estimates that states will receive $25.6 billion from the tobacco settlement this year, but only use 1.8 percent of it to combat tobacco use.
If the news that some of the money from the foreclosure settlement won’t end up in borrowers’ hands is disappointing to some, it won’t be the first time this week that the deal has let someone down.
While the settlement involves five of the country’s largest banks — Citigroup, JPMorgan Chase, Ally Financial, Wells Fargo and Bank of America — and an amount of money that has been called one of the largest mortgage settlements in history, most borrowers stand to realize practical benefits that are marginal at best.
Some 1 million homeowners will receive material mortgage relief that may help them stave off a default, but another 775,000 borrowers who have lost their homes to foreclosure will receive payments of no more than $2,000.
And the settlement excludes mortgages owned by Fannie Mae and Freddie Mac, the massive mortgage agencies currently in government conservatorship, which means about half the country’s mortgages aren’t covered at all by the deal. So, its like, huh … what was THAT about?