States lay foundation to allocate foreclosure settlement funds

The recent compensation deal struck between the nation's largest mortgage lenders and state attorneys general offices could help spur recovery in local housing markets, Bloomberg reports.

The recent compensation deal struck between the nation's largest mortgage lenders and state attorneys general offices could help spur recovery in local housing markets, Bloomberg reports.

However, according to the news source, a number of states will not only use the funds to support local housing markets, but will allocate a certain portion of funds to filling budget hole left in the wake of the recession.

For example, Wisconsin will reportedly use $140 million of the funds received to patch their fiscal budget, while Missouri says it will devote $40 million to repair its education system. Meanwhile, other states, such as Ohio plan to use funds to demolish vacant foreclosed houses to cut down the number of distressed properties currently adding downward pressure to the state's home prices.     

The settlement reached with the lenders amounted to an estimated $25 billion - 90 percent of which is due to help households wrongfully foreclosed upon. According to the spokesman of Iowa Attorney General Tom Miller, this will leave roughly $2.66 billion for states to use provide safety and soundness for households by bolstering local economies and housing markets.

Meanwhile, Bloomberg anticipates a significant portion of states that have encountered higher rates of foreclosures to use the funds to curb this trend.  

"If my home were in foreclosure, I would want to make certain that the revenue in my state was directed at ameliorating that specific problem," David Adkins, executive director of the Council of State Governments in Lexington, Kentucky, told the news outlet.

However, some critics argue that local state governments should no be able to use the funds for anything other than helping struggling homeowners. 

"Not one dime should be used to fund the unbalanced state budget," said Milwaukee Mayor Tom Barrett. "Families and local communities did not cause the foreclosure crisis, nor did they have a hand in the mismanaged state budget."

Other states, such as New York, plan to use the funds to assist the state's growing homeless population, as well as strengthen the local healthcare system. In addition, New York will use a portion of the settlement to fund legal representation for borrowers facing eviction from their homes in the future. State legislators hope this will keep households from being wrongfully foreclosed on.



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