The relief felt by consumers after the almost $25 billion mortgage settlement deal earlier this month didn’t last long. Now that the total has been agreed to by the nation’s top mortgage lenders, politicians are angling to lay claim to a large chunk of the money for their states – and not just for foreclosure relief.
Missouri Gov. Jay Nixon hopes to use a chunk of the money to avert a huge budget cut for public colleges and universities. And he’s not the only one.
Like a pot of gold in a barren field, the settlement money offers a tempting and timely source of funding for state governments with multimillion-dollar budget gaps.
Although most of the money goes directly to homeowners affected by the mortgage crisis, the settlement announced this month by attorneys general in 49 states includes nearly $2.7 billion for state governments to spend as they wish.
Some are pledging to use it as relief for struggling homeowners or to help related initiatives such as a Michigan plan to assist children left homeless by foreclosures. But several states are already planning to divert at least some of the money to prop up their budgets, and more will be wrestling with those decisions in the coming weeks.
For some consumer advocates, the diversion is reminiscent of the 1998 tobacco settlement in which states spent billions on projects that had nothing to do with curbing smoking.
“We shouldn’t be in the position of taking money that is intended to help consumers and their mortgage tribulations and putting that to another purpose,” said Joan Bray, a former Democratic Missouri senator who now is chairwoman of the Consumers Council of Missouri.
A federal judge in Washington could approve the final settlement by the end of February. Once that happens, money could begin flowing to states within a couple of weeks, arriving just as lawmakers are crafting budgets for the upcoming fiscal year.
According to Gov. Nixon, the money was “as we looked at it, relatively unfettered. Clearly the economy was affected all across the country by foreclosure challenges, and I think it is apt and appropriate to use those dollars to help restore some of the challenging cuts that I was forced to make.”
If you have been affected by a foreclosure, do you agree with Gov. Nixon? Should this money be spent as it was intended, or should state be allowed to spend it as they see fit?