The proposed state House budget could use nearly $23 million from a blockbuster legal settlement with the nation’s largest mortgage servicers to plug budget gaps, joining dozens of states in redirecting money intended to help struggling homeowners.
Though law enforcement and housing advocates will still receive the millions directed to them in the settlement, the House budget also encourages state agencies to use settlement dollars to make up for cuts in other places.
In total, about one-third of the money sent to the state government could be used to fill holes in the $20.3 billion budget, which was approved Wednesday,.
For example, about $3 million in settlement money is likely to help cover a new crime lab building in the western part of the state. Another House directive would use mortgage settlement money to replenish a fund to spur housing construction.
Overall, the House is suggesting diverting $7.5 million on top of money the state had already announced wouldn’t make it to homeowners: roughly $6 million for the public school system and $10 million simply lumped into the state’s general revenues.
“It’s kind of sad that the budget might in fact pit individual household interest against that of the construction sector,” said Bridgette Raspberry, vice president of the N.C. Association of Community Development Corps.
Bank of America Corp., Wells Fargo & Co. and three other banks entered into the $25 billion agreement with state attorneys general and federal agencies in February, with formal approval last month.
The majority – about $20 billion – will go directly to homeowners in the form of principal reduction and refinancings, but each state government also received a cash payment.
Though state and federal officials, including N.C. Attorney General Roy Cooper, touted these payments as a way to help homeowners avoid foreclosure and boost investigations into financial crimes, there are no legal guidelines for how they are to spend the money. Each state has the authority to decide that.
Overall, North Carolina’s take of the settlement is $338 million.
About 80 percent of that will go directly to borrowers, in the form of principal reduction for homeowners who owe more than their homes are worth, small payments to people who already have lost their homes, and other foreclosure prevention efforts.
The state will receive the other 20 percent, or about $64 million.
About $10 million already was slated for the state’s general fund and $6 million for the public school system, as spelled out in the settlement. Critics nationally have said most money should be targeted to housing programs, not a state’s general fund.
The rest goes to several state agencies to help homeowners.
“It’s important that the funds be invested as spelled out in the court order,” Noelle Tally, a spokeswoman for Cooper, said in an email. “We’ll be working with the legislature to make sure that the state agencies involved will be able to do that.”
But the House proposal also suggests that agencies take an additional $7.5 million away from these intended purposes.
About $3 million was taken from the Department of Justice operating fund and will be used to build a Western Regional Crime Lab in Edneyville, a small town in Henderson County, about 100 miles west of Charlotte. A House budget committee document suggests using settlement money to make up for the difference. The money had been earmarked for expanding financial crime investigation at the State Bureau of Investigation.
A sum of $4.3 million was taken from the Housing Finance Agency’s Housing Trust Fund, which funds affordable housing construction around the state. Again, the House suggests redirecting settlement money to replenish it. The agency’s settlement money was intended to be used for housing counselors and legal representation.
And $200,000 was taken from the Conference of District Attorneys administration budget, with settlement money to fill the gap. The attorneys are using settlement money to expand prosecution of financial crimes.
A spokesman for House Speaker Rep. Thom Tillis, R-Mecklenburg, did not respond to requests for comment.
In February, though, Tillis’ office said it was too early to speculate about how the state will use the money it receives. The office of state Senate President Pro Tem Phil Berger gave a similar statement at the time.
Several other states have decided to put a larger portion of their share to balance their budgets, drawing criticism from political opponents and national organizations.
Data compiled by ProPublica this week show that of the $2.5 billion nationally directed to the states, nearly $1 billion has been sent to states’ general funds.
Wisconsin’s state government will receive $31.6 million from the settlement, and nearly all of it will go right into the state’s general fund, Gov. Scott Walker announced in February, according to a Bloomberg report.
Milwaukee Mayor Tom Barrett called the move “unconscionable,” according to the Wisconsin State Journal.
The state of Missouri is using most of its allotment to restore funding to public colleges and universities, the office of Gov. Jay Nixon said.
Georgia will put all of its roughly $100 million allotment into the state treasury to be disbursed by the state legislature, the attorney general’s office said, citing a state law requiring it to do so.
New Jersey, New York and California have pledged to use the money for housing programs and other foreclosure assistance. Many other states have not yet announced plans for how to use the money.
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