Mortgage Money Misspent

by Gerri Willis

California Governor Jerry Brown has a secret weapon in his fight to close his state's $16 billion budget gap.

Yes, he's doing the usual things politicians do. He's raising taxes; he's making some budget cuts. But to make ends meet he's tapping into a $400 million slush fund provided by the nation's biggest banks.

Of course, that's not what that money was meant for.

Earlier this year, the country's five biggest banks reached a $25 billion settlement with the 50 states over abuses in their mortgage and foreclosure processes. Remember robo-signing?

Most of the settlement money is coming from writing down mortgage debt, but two and half billion is cash, earmarked for the states to prevent foreclosures, investigate fraud, and lessen the impact of the housing crisis.

California's not alone in this. Only half the states - 27 - are using these funds as intended.

The other 23 have found this windfall too tempting to pass up and are dipping into it, like California, to plug holes in their budgets.

Some states are getting creative.

Georgia plans to use its share - $99 million dollars - to attract more businesses to the state. The Georgia Governor's Office saying job creation is the best way to save honest homeowners from foreclosure.

But then there are states like Missouri. The "show-me” state should change its name to the shameless state. Its $40 million payout is going to make up for cuts they previously made to higher education.

Virginia using most of its $67 million to bail out local governments deep in debt, while Texas is depositing its $125 million straight into the general budget.

This is the states' second-largest settlement in history. Payouts like this don't happen every year.

Instead of using this money as intended, to shore up the nation's troubled housing market, politicians are exploiting it so they can put off making tough budget decisions. What are they going to do next year? Hope it's someone else's problem, I guess.

My objection to the settlement is this: It delayed any recovery in the housing market because banks didn't want to lend without knowing how much they'd be on the hook for in a settlement.

Just as bad, a slew of folks who should have lost their homes because they weren't paying their mortgage were able to squat for months and months - living rent free.

None of this helped the average homeowners who were faithfully paying their mortgage. Because there was no recovery in housing prices and the market seized up, sellers and buyers alike stayed home.

Here's the real problem with the management of this settlement: Nobody here seems to be looking out for the homeowner.

And I mean the homeowner who is paying his or her mortgage and owes more than their home is worth.

This is a tragedy.

Get government out of the way and let the market recover.