States are looting the Mortgage Settlement Fund, and the odds are good that you or someone you know is getting robbed -- for the second time.
According to recent reports, politicians, not bankers, are the culprits this time around -- siphoning billions from that historic settlement and pumping it into their broken state budgets. Instead of "manning up" and changing their diet, they're taking a cue from ancient Rome: After a quick trip to the vomitorium, it's back to the banquet table. (Care for a mint?)
Their willingness to play fast and loose with the settlement -- crawling through certain wiggle words in its language to circumvent the clear intent of its negotiators --- tells me they still haven't learned where "fast and loose" leads. Ironically, some of the worst offenders are the governors of states that originally led the fight to win justice for consumers -- with California Gov. Jerry Brown leading the charge.
Remember the settlement -- the $25 billion that America's five largest mortgage servicers paid out to atone for fleecing millions of American homeowners? Wells Fargo, Bank of America, JPMorgan Chase, Ally Financial and Citigroup were held accountable for fraudulent foreclosure practices -- including the notorious practice dubbed "robo-signing" -- that cost millions of Americans their homes. The idea was not just to punish the banks (and the jury is out on exactly how much this really does punish them), but to help beleaguered homeowners as well as raise the level of consumer financial awareness in this country so 2008 would never be repeated.
"This is neither the beginning nor the end of our work to hold banks and other institutions accountable for the destruction they've caused families, communities and country," said Illinois Attorney General Lisa Madigan when the deal was announced. "Today's settlement should serve as a warning."
The settlement set aside more than $2 billion for the 49 participating states and the District of Columbia -- money that was supposed to help prevent foreclosures with programs like down payment assistance, foreclosure counseling and financial literacy training.
Unfortunately (perhaps predictably), as the money reached the states, the wheels went off the tracks. In California, Attorney General Kamala Harris exulted about the good the settlement would do for people in her state, hard-hit by the foreclosure crisis. "Hundreds of thousands of California homeowners will benefit," said Harris, as her office took steps to "ensure the settling banks deliver on their promises."
The state AG's gaveth and just like that, the state Governors tooketh away! Over Harris's strenuous objections, California Governor Jerry Brown took every penny of the state's $410.5 million in settlement money -- even though applying that sum to California's hemorrhaging $15.7 billion budget deficit is like putting a Band-Aid on a gunshot wound.
Brown's ethical lapse is more ironic -- and ill-conceived -- given that one major source of the state's budget woes is the economic fallout caused by the decimation of millions of Californians who were lured into buying (or irresponsibly raced to buy) homes they could ill afford. To take money from consumer protection and education programs to fill a one-time hole in the state budget is, of course, preposterous.