Using mortgage settlement funds in budget could cost CA in the long run

Governor Brown’s plan to include funds from the national mortgage settlement in the budget will do very little to help slow foreclosures in the state

CALPIRG

Sacramento, CA—In Governor Brown’s May revision of the budget he proposes spending $292 million of the national mortgage settlement to help fill the state’s budget gap this year, and the remaining $118 million next year. The majority of these funds, $198 million, will go toward paying off general fund bond debt in the current budget.

“It’s ironic that Governor Brown would propose taking money from people struggling to pay off mortgage debt because he’s struggling to pay off the state’s debts,” said CALPIRG legislative director, Pedro Morillas. “Instead of providing long term solutions for struggling homeowners, the settlement money is going to serve as a short term stopgap in the budget.”

The AG settlement funds are a significant resource earmarked to help correct the housing market, which will drive our overall economic recovery and improve the state’s tax base. If used to help borrowers renegotiate their loans, the benefits to the state will last as long as those borrowers are able to avoid foreclosure. Using the money in the budget this year will only yield results until next year’s budget comes due.

“When the Attorney General signed California on to the multistate settlement, many advocates would not have supported her had the agreement not included hundreds of millions of dollars to directly help individuals currently dealing with foreclosure,” said James Zahradka, Supervising Attorney at the Law Foundation of Silicon Valley. 

Mr. Zahradka added, “The Governor’s effort to plug a budget hole with funds that were specifically designed to help homeowners who have been dealt with horribly by banks, like many of the clients I serve, is not only short-sighted, it is morally bankrupt.”

According to a national report issued by the Urban Institute in December 2011, each foreclosure that is prevented saves an average of $70,600 in avoided costs. The savings involve moving expenses, legal fees, administrative charges to homeowners, and lender losses. There are also significant savings for local governments, including code enforcement costs, police and fire department expenses, not to mention the reduced property values of residents.

Since the fourth quarter of 2007 through the fourth quarter of 2011, more than 785,000 California families have lost their homes to foreclosure. This equates to more than $55 billion in avoidable costs to our local economies. Using the settlement funds to mitigate even a fraction of the foreclosures yet to come will yield a greater benefit to the state than using them all up on a one time fix.

“Many of us have spent the last decade working to protect and serve families who were facing predatory lending, the tactics of unscrupulous lenders and the game playing of a greed-driven real estate market,” said Lori Gay, president of Neighborhood Housing Services of Los Angeles County.

Mrs. Gay concluded, “The settlement negotiated by Attorney General Harris gave us some hope that relief might finally come to families. To have the Governor work to strip away pieces of the settlement which would help families regain stability and dignity speaks volumes regarding the low level dealing that goes on behind closed doors.  Will real people, real families and the voters ever get dealt a fair hand?”

Seventy three legal aid and housing counseling agencies joined forces to protest Gov. Brown’s proposal.

The agencies signed on to a letter to the Governor on June 8 that outlines compelling reasons why the funds should remain dedicated to direct aid to borrowers: the funds are a significant resource that will help correct the housing market, drive overall economic recovery and improve the state’s tax base. The funds could prevent more foreclosures by providing housing counseling services and other relief to homeowners in crisis and providing legal support to prevent improper, illegal and fraudulent foreclosure documentation.

Here is the list of signers to the June 8th letter:

Able Works
Advocates for Neighbors, Inc.
Alameda County Bar Association
Asian Law Alliance
Asian Pacific American Legal Center
ASIAN, Inc.
California Coalition for Rural Housing
California Reinvestment Coalition
Cambridge Credit Counseling Corp.
Center for Human Rights and Constitutional Law
ClearPoint Credit Counseling Solutions
Coalition for Quality Credit Counseling
Community Housing Council of Fresno
Community Housing Improvement Program, Inc.
Community HousingWorks
Consumer Action
Consumer Credit Counseling Service of the North Coast 
Consumer Credit Counseling Service of Orange County
Consumer Credit Counseling Service of San Francisco
Consumer Credit Counseling Service of the Twin Cities
EPA CAN DO
Fair Housing Council of Riverside County
Fair Housing Council of the San Fernando Valley
Fair Housing Council of Orange County
Fair Housing of Marin
GreenPath Debt Solutions
Homeownership Preservation Foundation (HPF)
HomeStrong USA
Housing and Economic Rights Advocates
Housing Resource Center of Monterey County
Impact Fund
InCharge Debt Solutions
Inland Counties Legal Services
Inland Fair Housing and Mediation Board
Korean Churches for Community Development
Korean Resource Center
Law Foundation of Silicon Valley
Legal Aid Association of California
Legal Aid Society of Orange County
Mission Economic Development Agency
Money Management International, Inc.
National Asian American Coalition
National Coalition for Asian Pacific American Community Development
National Housing Law Project
Neighborhood House Association
Neighborhood Housing Services of Los Angeles County
Neighborhood Housing Services of Orange County
Neighborhood Housing Services of the East Bay
Neighborhood Housing Services Silicon Valley
Neighborhood Partnership Housing Services, Inc.
Novadebt
OneJustice
Operation HOPE
Orange County Home Ownership Preservation Collaborative
Peoples’ Self-Help Housing Corporation
Project Sentinel, Inc.
Public Counsel
Public Law Center
Redwood Community Action Agency
Rural Community Assistance Corporation
Self-Help Enterprises
Springboard Nonprofit Consumer Credit Management, Inc.
SurePath Financial Solutions
Thai Community Development Center
The Greater Sacramento Urban League
The Unity Council
The Watsonville Law Center
Tri-Valley Housing Opportunity Center
Union of Pan Asian Communities
Ventura County Community Development Corporation
Visionary Home Builders of California, Inc.
Worksafe
Yuba Sutter Legal Center for Seniors

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The California Public Interest Research Group (CALPIRG) is a nonprofit public interest advocacy organization that stands up to powerful interests on behalf of all Californians.
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The Law Foundation of Silicon Valley advances the rights of individuals and families in our diverse community through legal services, strategic advocacy and educational outreach.  Fair Housing Law Project, one of the Law Foundation’s five legal services programs, works to protect homeowners from unlawful and unnecessary foreclosure, as well as mortgage modification scams.