Virginia Diverted Mortgage Settlement Money to Local Governments

Virginia diverted most of a multimillion-dollar mortgage settlement that was intended to protect consumers and assist state foreclosure prevention efforts to local governments.
by | May 23, 2012

By Michael Welles Shapiro, Daily Press, Newport News, Va.

Virginia lawmakers in March diverted most of a multimillion-dollar mortgage settlement payment to local governments.

Virginia received $66.5 million as part of a national $25 billion settlement with five large banks for foreclosure fraud. Direct payments to states were intended to protect consumers and assist state foreclosure prevention efforts, but in many cases state legislatures funnelled some or all of their payments to other budget needs.

In Richmond, the decision to send $59 million -- 89 percent of the money -- to local governments and leave $7.5 million for homeowners was overshadowed by other aspects of a rancorous budget debate. On Monday a struggling homeowner and a nonprofit that advocates for foreclosure victims called the arrangement unfair.

In presentations to the House and Senate Finance Committees earlier this year, Attorney General Ken Cuccinelli stated it was his "preference that money be used for foreclosure prevention or counseling programs, or to enhance consumer protection efforts to prevent and prosecute financial fraud."

Cuccinelli could have bypassed the legislature altogether and put the money toward those purposes, but he chose to leave the spending decision to the lawmakers.

His spokesman, Brian Gottstein, said Cuccinelli told the committee members that "$66 million was a large amount of money to allocate, and therefore, in keeping with the separation of powers in government, he felt it was more fitting that the legislature, not the attorney general, appropriate it."

Lawmakers put $7.5 million of the money in a housing trust fund to aid homeowners. The rest went to local governments, to the aggravation of advocates for borrowers.

No matter how deserving local governments may be, the diversions came at the expense of homeowners in tough situations, said Regina Chaney, who helps homeowners negotiate the terms of their loans with Housing Opportunities Made Equal of Virginia, a Richmond nonprofit.

"That's still on the backs of the folks who lost," said Chaney. One of her clients, Patricia Slade, has spent six years struggling to assume a mortgage on her childhood home in Hampton after her mother passed away.

Slade started making payments on the home but eventually fell behind. On two occasions she applied to modify the loan but was denied by her bank, J.P. Morgan Chase, one of the five banks that are part of the settlement.

Slade, 62, eventually moved out of the house because it needed a repair she couldn't afford. She's in Northern Virginia currently for a job but said she wants to move back into the Hampton home.

"I'm very upset," Slade said when told about the General Assembly's decision about how to use the state's share of the settlement.

Chaney said she hopes the $7.5 million will be used to help people like Slade get legal assistance. But, she added, the smaller amount will have to stretch farther.

"I have so many people who are still struggling or who just gave up," she said.

House Democrats authored a budget amendment in March that would have put the full amount of the settlement toward foreclosure victims, but the measure failed on a 70-29 vote.

Del. Scott Surovell, D-Fairfax, said geographical politics were at play in the vote, noting the foreclosure crisis hit Northern Virginia and Hampton Roads particularly hard.

He drew a contrast with the 1999 tobacco settlement, which had a larger impact on rural residents in Southwest and Southside Virginia. That money, according to Surovell, has been largely used for its stated purpose.

The bulk of the mortgage settlement money was put into the general fund, and lawmakers in the House and Senate say it allowed them to pay for other needs -- though they disagree on what holes it was used to plug.

"The decision of the General Assembly was to try and divert the money to public education and in that way it would get back to homeowners," said Sen. Chuck Colgan, D-Prince William. "I think the way it turned out was pretty good."

A House Appropriations Committee document says the money was used to pay for improvements to local wastewater treatment plants.

"The bottom line is the balance was not used for its intended purpose, and the victims of this foreclosure mess have been left holding the bag," Surovell said.

A Cuccinelli aide said the office had no reaction to the lawmakers' choice to divert money from homeowner assistance: "It was the General Assembly's decision to make."

(c)2012 the Daily Press (Newport News, Va.)

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