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Mortgage Settlement State Uses Updated 5-16-12

Mortgage Settlement State Uses Updated 5-16-12

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Published by Martin Andelman
This is Amanda Sheldon Roberts of Enterprise who published this report to show how the states weer diverting settlement money to fill state budget deficits.
This is Amanda Sheldon Roberts of Enterprise who published this report to show how the states weer diverting settlement money to fill state budget deficits.

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Categories:Types, Research, Law
Published by: Martin Andelman on Jun 08, 2012
Copyright:Attribution Non-commercial

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06/08/2012

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$2.5 Billion
Understanding how States areSpending their Share of theNational
Mortgage Settlement
Amanda Sheldon Roberts
 
 
1
Updated May 16, 2012
Introduction
The National Mortgage Settlement is a historic joint state-federal initiative that settles charges that thefive largest loan servicers (Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo)engaged in a number of servicing abuses andimproperly foreclosed on thousands of borrowersaround the country. The landmark settlement wasfirst announced on February 9, 2012, and documentsofficially filed in federaldistrict court and madepublic on March 13, 2012.The settlement was approvedon April 4, 2012.The $25 billion settlementincludes a mix of directpayments by the servicersand credits for a range of servicing activities. Most of the settlement,approximately $17 billion,will be in the form of creditsfor loan modification and foreclosure preventionactivities for homeowners still in their homes.However, $1.5 billion will provide direct payments toborrowers who have been unfairly foreclosed upon,$3 billion will help current
 
homeowners refinanceunderwater mortgages, and $1 billion will enhancethe Federal Housing Administration (FHA) capitalreserve fund.In addition to payments listed above, forty-ninestates and the District of Columbia (from here on,referred to as a state) will receive direct paymentstotaling just over $2.5 billion. In the settlementdocuments, the general guidelines for use of thefunds are:
To the extent practicable, such funds shall be used  for purposes intended to avoid preventable foreclosures, to ameliorate the effects of the foreclosure crisis, to enhance law enforcement efforts to prevent and prosecute financial fraud,or unfair or deceptive acts or practices and tocompensate the States for costs resulting fromthe alleged unlawful conduct of the Defendants. 
The settlement documents provide a description of what the states intend to do with the funds. Somestate descriptions are very specific, while others arevague. Nonetheless, these descriptions provide thefirst insights into how this $2.5 billion will be spent.Despite some states diverting funds for non-housingneeds, housing advocates are encouraged that, forthe most part, the funds will be spent on housing-related activities.$2.5 billion is a substantialamount of money and could bea tremendous resource forstruggling homeowners andcommunities that have beendevastated by the foreclosurecrisis and the abusive actions of the loan servicers. $2.5 billion isalso tempting to state governorsand legislators who have beenstruggling with state budgetshortfalls for years. Therefore,despite the language contained in the settlement, anumber of states have diverted the settlement fundsaway from housing and foreclosure preventionactivities.For most states, the attorney general is the directrecipient of the funds and the sole decision-maker asto how the funds will be used. However, stateconstitutions differ, and several states noted in thesettlement that the final appropriations decisionwould be made by the legislature. Similarly, anumber of attorneys general have made specificrecommendations to their legislature as to how theywould like the money to be spent, but the finaldecision will be made by the legislature and/or thegovernor. Also, the timing of these decisions variesfrom state to state. Some states have finalized thedecision already; others are still in the process.Therefore, housing advocates who would like to seethe funds used for housing or foreclosure preventionactivities must understand the decision-makingprocess and timing in their particular state in order tobe impactful.
 
 
2
Overview of State Spending
In 50 state capitals around the country, attorneys general, governors, legislators, and public housingadvocates are working to determine how the $2.5 billion will be spent. This is a dynamic process, and it isimpossible to know exactly what is happening in all 50 states at any given time. However, based on the bestavailable information at the time of writing, the following national statistics and trends can be observed.
Percentages of states using their settlement funds for housing- and foreclosure-related activities:
 
27 states are using substantially all of their funds for housing (Noted as “Y” in the “For Housing?”column of the state-by-state analysis table beginning on page 4).
 
10 states are using part of their funds for housing (“partial” in the “For Housing?” column).
 
5 states are not using their funds for housing (“N” in the “For Housing?” column).
 
8 states are completely open as to how their funds will be used (“open” in the “For Housing?”column).

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