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The Bubble and Beyond

The Bubble and Beyond

By Michael Hudson

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Ear to the Ground

Needy States Use Housing Aid to Prop Up Budgets

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Posted on May 16, 2012
cwwycoff1 (CC BY 2.0)

Some states are using money from the settlement with banks to cover shortfalls in education, energy costs and local government budgets.

More than a dozen states are plugging gaps in their budgets with hundreds of millions of dollars won from banks in mortgage and foreclosure settlements and intended to provide help to struggling homeowners.  —ARK

The New York Times:

The money was part of a national settlement valued at $25 billion and negotiated with five big banks over abuses in their mortgage and foreclosure processes.

The settlement, reached in February after a year of talks and intervention by the Obama administration, was the second-largest in history involving the states, trailing the tobacco industry settlement, and represented the first large-scale commitment by banks to provide direct aid to borrowers.

As part of the settlement, the banks agreed to pay the states $2.5 billion, money intended to help homeowners and mitigate the effects of the foreclosure surge. But critics complained that this was the only cash the banks were required to pay — the rest comes in the form of “credits” for reducing mortgage debt and other activities. Even that relatively small amount has proved too great a temptation for lawmakers.

Only 27 states have devoted all their funds from the banks to housing programs, according to a report by Enterprise Community Partners, a national affordable housing group. So far about 15 states have said they will use all or most of the money for other purposes.

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PatrickHenry's avatar

By PatrickHenry, May 16, 2012 at 3:48 pm Link to this comment

Misdirection of funds, what’s new?

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By LillithMc, May 16, 2012 at 12:57 pm Link to this comment

Time for the feds to start controlling the money they
send to the states as well as FICA money they collect
that should not be in the US general fund.  Make sure
the big banks stay away from the money too.  Would you
give your kid money on trust?  We are dealing with the
same mentality.

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By gerard, May 16, 2012 at 11:09 am Link to this comment

Talk about “robbing Peter to pay Paul”!  This looks on the surface like an exercise to turn one huge mess into 50 not-so-huge messes, with homeowners losing some of the money in between the here and the there as it passes by. It might be smarter to organize mortgage paybacks in such a way that individual banks reimburse homeowners for whose foreclosure they are directly responsible. Or would that be too direct, too inter-personal, too fact-to-face?  But ... how else can personal responsibility be acknowledged?  Or is that the problem—that the banks and the government together are actively avoiding personal responsibility?

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