Earlier this month, an agreement was reached between the states attorneys general and the nation’s major lenders on a $25 billion dollar settlement that is supposed to compensate homeowners hurt by inappropriate lending practices. We all know however, that $25 billion won’t solve the problem. As one real estate agent so aptly put it:
“The latest mortgage settlement will have little to no impact on the current real estate market. It is limited to non-government backed loans, which accounts for less than 40 percent of the existing loans. If homeowners can’t afford their homes today the majority won’t be able to afford it tomorrow even under the new settlement. Distressed homeowners need to understand all their options and the associated tax and credit implications,” explained Andee Allen of Coldwell Banker Liberty Realty.
A majority of the money, according to the settlement, is allocated to programs to help struggling mortgage holders and those improperly foreclosed on by their lender. But real estate professionals, community developers and those involved in the foreclosure process themselves say there are few signs the rate of foreclosure filings will slow down, and help from the settlement will be a case of too little and too late for many struggling property owners.
Please note that word “majority”. It is interesting to note that not all the money is earmarked to help with foreclosure issues. In fact, some of the money is for the states to use in any manner they see fit”
The ink wasn’t even dry on a settlement with the nation’s top mortgage lenders when Missouri Gov. Jay Nixon laid claim to a chunk of the money to avert a huge budget cut for public colleges and universities.
He’s not the only politician eyeing the cash for purposes that have nothing to do with foreclosure. Like a pot of gold in a barren field, the $25 billion deal offers a tempting and timely source of funding for state governments with multimillion-dollar budget gaps.
Although most of the money goes directly to homeowners affected by the mortgage crisis, the settlement announced this month by attorneys general in 49 states includes nearly $2.7 billion for state governments to spend as they wish.
$2.7 billion is almost 11% of the settlement. Using it to fill gaps in budgets seems a bit short sighted:
States that use the onetime payout for immediate expenses may also face the question of what to do next year when the money is used up. But officials in struggling states say they must deal with the most immediate problems first.
Be that as it may, we at least know for sure that 11% ISN’T going to solve the foreclosure problem. And what about the rest of the fund?
The $25 billion is earmarked for distribution over 3 years, with incentives for giving out a larger proportion of the payout in the first year. Since we know from recent experience that there were significant problems with monitoring and enforcement by governmental authorities for oversight of previous mortgage settlement programs, it is not unreasonable to assume that similar complications will arise.
I know, I know. This is a “dog bites man” type of story. It would be more novel to talk about an efficient and successful government program that is helping the housing market.
If anyone hears anything about a program like that, be sure and let us know.