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October 18, 2012

POLICY POST: States Fall Short on Help for Housing

By Andrew Jakabovics and William McHale

Six months after finalizing the landmark $25 billion National Mortgage Settlement, the 49 states and the District of Columbia who were parties to the settlement have been allocating and distributing their respective shares of the $2.5 billion that was designated for them, but less than half of the announced expenditures will be used as intended.

Direct payments to the states were intended to help prevent foreclosures, stabilize communities, and prevent or prosecute financial fraud. To date, states have announced plans to spend $966 million for housing and foreclosure-related activities, while $988 million has been diverted to states’ general funds or for non-housing uses. There is $588 million remaining to be allocated, of which Texas and Florida comprise the lion’s share and with the rest spread out among states that have already begun to roll out their plans.


Despite the central role of the attorneys general in negotiating the settlement, including the stipulations of how they will use their share of the funds, legislatures and governors have often weighed in heavily on how the funds will be spent. This has led to some very public disputes over who has the actual authority to allocate the money. Not surprisingly, perhaps, this struggle has come to the fore in California and Florida, by far the two largest individual recipients of settlement funds, accounting for almost 30 percent of all money flowing to the states. In California, the dispute is between the attorney general and the governor, while in Florida, the attorney general and legislature are at odds.

The settlement directs funds to states’ attorneys general in most cases. However, even when the settlement enumerates intended uses, the attorneys general have considerable leeway in determining how to use the funds. Realistically, $2.5 billion in unanticipated funds flowing into state government is a windfall at a time when most states are facing severe budget shortfalls. Our research has identified eight states that have deviated from the agreed upon uses of the funds.

Our analysis of state activities shows that the while the majority of states are using or plan to use most, if not all, of their funds for housing-related activities, the largest recipients are not currently doing so.

Twenty-three states are using all or substantially all their funds for housing. The settlement established an overall 10 percent cap on the money that can be considered a civil penalty or fine, so we consider states using at least 90 percent of their funds for housing in this top category. Five states have allocated between 70 and 89 percent of their funds for housing, while fourteen states are putting some money, but less than half, towards the intended uses. The remaining states have put all the settlement funds towards other uses or have not yet determined how they will use the money.

Of the states that have decided to allocate funds for housing:

  • 25 states will spend funds on legal assistance to homeowners
  • 21 states will spend funds on housing counseling
  • 17 states will spend funds on law enforcement or more litigation
  • 14 states will spend funds on marketing or outreach to educate residents about foreclosure-prevention options
  • 13 states will spend the funds on foreclosure prevention
  • 8 states will spend funds on affordable housing programs
  • 8 states will spend funds on foreclosure mediation programs
  • 7 states will spend the funds on neighborhood stabilization activity
  • 7 states will spend funds on foreclosure prevention hotlines
  • 5 states will spend funds on foreclosure scam rescue programs
  • 4 states will spend funds on loan modification programs

Read our full report, including a state-by-state analysis of how states are using the money.



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