There has been a lot of talk about the current budget stalemate. What the press has not focused on is all of the problems in the current budget. I wrote about this earlier this week. One problem I did not discuss in that column was the misappropriation of the mortgage settlement.
We recently suffered one of the biggest financial crises this country has ever seen. It was caused by a number of factors. One of them was an overheated real estate market, fed by out of control banks lending money to people who had no business borrowing.
After the size and scope of the problem was discovered, the banks tried to cut their losses by jamming hundreds of thousands of foreclosures without proper documentation or jumping through the right hoops. Thousands of families were evicted without proper basis and people who attempted to negotiate in good faith were steamrolled.
Ultimately, it was discovered that banks had hired people off the street to sign affidavits without any knowledge as to whether they were true or not (usually the case was not). This was called robosigning.
In early February, the Attorneys General of nearly all states negotiated a $25 billion settlement with the major banks who were guilty. This is the second largest settlement in U.S. history. It is second only to the tobacco settlement.
Generally speaking, the settlement provides the following relief (most information at www.nationalmortgagesettlement.com):
- People Still in Homes But In Default - Banks have allocated $17 Billion for principal write-down of people still in "underwater" homes.
- People Still in Homes, Current on Mortgage But Underwater - $3 Billion is allocated for refinance programs to people who cannot refinance because their homes are underwater (they would normally have to pay money to refinance to get their mortgage balance beneath the value of the home).
- Mortgage Servicing Reforms - This is mostly technical but was the cause of most of the problems.
- Consent Judgment & Monitoring - Banks are agreeing to a court order regarding their practices so they can be punished through contempt of court.
- Kicked Out Homeowners - $1.5 billion was allocated for cash payments to people who were wrongfully foreclosed upon - up to $2000 per family.
- Payments to the States - The states are being paid a combined $2.5 billion.
The funds may be distributed by the attorneys general to foreclosure relief and housing programs, including housing counseling, legal assistance, foreclosure prevention hotlines, foreclosure mediation, and community blight remediation. A portion of the funds may also be designated as civil penalties for the banks robo-signing misconduct.The payment is made to the Attorney General, Ken Cuccinelli. Under Virginia Law, the Attorney General can only collect and spend $1 million per year in these kinds of settlements. Therefore, he turns the money over to the General Assembly to appropriate.
The budget we voted on last week, takes the state's share and simply dumps it into the General Fund to cover our budget hole. This is wrong.
When Virginia received the Tobacco Settlement funding, it created the Virginia Tobacco Indemnification and Community Revitalization Commission. That money is (partly) used for the purpose for which it was intended.
I introduced an amendment requiring the monies to be appropriated to the Virginia Housing Development Authority so they could use it for:
- Downpayment assistance for first time homebuyers
- Housing counseling for new homeowners and foreclosure prevention
- Rehabilitation of vacant and abandoned properties
- Development of affordable rental housing
- Preventing homelessness through supportive housing and rapid re-housing.
According to the January, 2012 Report of the Governor's Foreclosure Task Force the following is true:
- Over 3% of all Virginia mortgages are currently in some form of delinquency.
- About 65,000 families are "seriously delinquent."
- There are 15,000 lender-owned homes in Virginia or about 1.3% of the total homes in Virginia
- In Northern Virginia, existing home sales are 49% off their peak and at their lowest point since 1998.
- "Delinquency rates have peaked but remain stubbornly high."
- "Weak home purchase demand continues to slow the reduction in lender-owned homes. The reinforcing interplay of large distressed inventories and declining home values has not been broken." (Page 18).
This is something that must be fixed before we pass any budget. Foreclosures not only hurt the evicted families, they also hurt neighborhoods. Foreclosures drive down property values. Blighted properties drive down values. The financial destruction wrought by the banks hurt everyone.
These monies need to be used for the people for which it was intended and should be used to help stimulate people's ability to achieve financial solvency, get back on their feet and ultimately purchase a home again.