The Real Deal Miami

Banks’ foreclosure settlement funds used to offset budget gaps

May 16, 2012 02:15PM

Shaun Donovan, HUD secretary

The U.S. government’s settlement against five big banks was supposed to benefit distressed homeowners, but many states cannot resist diverting the funds to make-up for budget shortfalls, the New York Times reported. When the government reached the estimated $25 billion settlement with banks over mortgage and foreclosure abuses, $2.5 billion was earmarked for states to prevent foreclosures, investigate fraud and alleviate general housing market woes. Now, 15 states have announced that they will be budgeting the money for items other than housing — although 27 states have agreed to use their entire distribution as intended.

The ambiguity of the federal government’s directives has allowed states to argue that a myriad of unrelated projects would benefit the local housing market. For instance, Georgia plans to use $99 million from the settlement on subsidies designed to bring businesses to the state, claiming “that the best way to prevent foreclosures amongst honest homeowners who have experienced hard times is to create jobs here in our state.”

On Tuesday, Shaun Donovan, federal housing secretary, pressed governors to reconsider. “Other uses fail to capitalize on the opportunities presented by the settlement to bring real, concerted relief to homeowners and the communities in which they live,” Donovan said. But state governments are not backing down and in many capitols the money will almost certainly be spent on non-housing related projects. [NYT]

  • Saphyrkat

    Yes, they need to revamp this issue as to ‘whom’ they will assist! I don’t have a fancy income, so the home I purchased back in 2007, didn’t cost over $22,000.00 but since my family and I have had some down times, some due to the mortgage company raising my % rate etc. It caused me to have to default on other creditors just to keep from losing my home. So I’ve called at least 10 of these so called financial aid banks/loan companies’ and all but 1 said they couldn’t help because my home was either: Less than $150,000 or I didn’t owe more than $150,000 on it! So I applied through my bank, and they also had some excuse why they couldn’t help me either, due to the fact there wasn’t a program to aid home-owners that didn’t have a home worth at least $80,000. So it makes one wonder just whom is to benefit from these offers to aid the financially crippled citizens, cause they won’t help anyone with an income less than $30,000 a year. So that leaves us disabled out of the program! Upset, I’m far from upset, I’m just purely annoyed at the system!