For the past several years the housing market has been a mess. While the latest reports show that the market is picking up, there has been plenty of help from the government and from lending institutions to get the market back on track. There was a large lawsuit with some of the biggest lenders that was settled earlier this year. The money that was distributed amongst the states was intended to go toward helping out distressed homeowners. They were to provide mortgage modification, counseling, legal aid, and other programs. Unfortunately, many of the states have not used the foreclosure lawsuit funds as they were originally intended. While some was given toward foreclosure programs, much was not used appropriately.
There was roughly $2.5 billion of foreclosure lawsuit funds that were distributed among the states, but less than half has gone toward the intended purpose. The $1 billion that was used to help with foreclosures has helped to offset a lot of the crisis. People have become aware of their options, they have more, and better, access to government programs, and they have the knowledge that it takes to make their mortgage payments. However, $1 billion is only 40% of the total amount distributed.
The financial crisis in recent years not only hit individuals, but it also affected governments. Many states have been running a budget deficit for several years, one that does not look as though it is going to be resolved any time soon. Because of the amount of red on their balance sheets, some states, such as California, Missouri, and Georgia (as well as a few others) allocated none of the money they received toward foreclosure programs. Another $1 billion of the $2.5 billion received was directed toward states general budgets.
That leaves $500 million that states are undecided what they will be doing with the money. There are 49 states in all that received a portion of the settlement, those with more foreclosures and were hit the hardest received more. There are some states that dedicated all the money toward foreclosure programs, some that dedicated some of the money, and some that dedicated none of the money. There are a handful of states that are unsure what they will do with a portion of it.
Because of the misuse of funds, there have been lawsuits in a number of states. Many of the representatives in the states that used the money for programs other than their intended purpose have filed suits against the politicians that acted irresponsibly. Unfortunately, many of these lawsuits have been dismissed or dropped. The battle is not over yet, and appeals have been filed.
It is no doubt that states needed the money that they received. They needed the money for other programs in addition to their housing programs. As this “free” money came in from the settlement, they decided to use it as they saw fit rather than as it was intended. At this point it is unclear of whether the lawsuits will go through and if the states will have to allocate the money toward foreclosure programs or not. But based on how quickly the lawsuits were dismissed already, it appears as though the money has gone into the general budget coffers, and will not be coming back out.