Where are the AG Settlement Funds for Foreclosure Prevention Going?

As part of the recent $25 billion settlement with 49 State Attorneys General, the Department of Justice and HUD, the 5 major servicers agreed to pay the states $2.5 billion, which could be used to fund foreclosure relief and housing programs, including housing counseling and legal assistance.   According to a recent New York Times article, about 15 states so far have said they will use all or most of the money for other purposes. Unfortunately, the terms of the agreement are general enough to give state legislatures and governors wide latitude in distributing the funds. States like Virginiaand Georgiahave already passed budgets that have diverted millions to cover budget shortfalls.  Maeve Elise Brown, the executive director of Housing and Economic Rights Advocates and NACA attorney, explains that diverting settlement funds for other purposes is short sided because while states may meet the budget gap this year, “but in the long term the more people we have going through foreclosure, the worse it’s going to be for our economy as a whole.”  According to the Brennan Center of Justice, investing in foreclosure prevention is a cost‐effective way to avoid the unnecessary costs of foreclosures.  The total costs to lenders, homeowners, neighbors and government can add up to nearly $80,000 per foreclosed home, according to a 2007 study by the U.S. Senate Joint Economic Committee.  But the cost of foreclosure prevention is far less. In New York, a statewide network of legal services and housing counseling providers has saved over 14,000 homes from foreclosure, avoiding an estimated $3.4 billion in property value and tax base losses to the state.

Also, we don’t want this to become another government program that doesn’t properly use its allocated funds to help homeowners avoid foreclosure. We’ve seen this happen all too often recently.  Last year, the federal government program Emergency Homeowners’ Loan Program (EHLP) aimed at helping unemployed homeowners avoid foreclosure ended with more than half its money unspent.  Unfortunately, HUD took too long to launch the program, which didn’t leave enough time to get applicants through a strict application process.  Instead of helping 30,000 homeowners as first intended, the program assisted fewer than 12,000.

The Home Affordable Modification Program (HAMP) is the Administration’s biggest foreclosure prevention effort has resulted in less than 900,000 permanent HAMP loan modifications.  While these modifications are significant for homeowners, this number still falls far short of the 3-4 million HAMP modifications that were anticipated.  In part as a result, billions of dollars allocated to HAMP remain unspent.

We know that funding for housing counselors and legal assistance is critical to helping homeowners avoiding foreclosure and preventing mortgage abuses from happening again. Let’s hope the states think again before diverting these funds.

-Ellen Taverna, NACA Legislative Team