ProPublica: States divert a billion dollars of foreclosure settlement to plug their budget gaps

(First American Valuation, Corp. As part of the controversial federal-state settlement over foreclosure abuse by the nation's five largest banks, half the $5 billion in penalties was carved out for cash distributions to the states. The idea was for the states to use that $2.5 billion to fund various consumer-related programs regarding bad foreclosures. But there was no requirement that states spend the money that way. And so far, many of them aren't, according to a state-by-state survey by the Pulitzer-winning investigative website ProPublica.

In fact, $974 million of that $2.5 billion has up to now gone to plug holes in revenue-short state budgets. Only $527 million has gone to programs related to the housing crisis. With a billion dollars left to be allocated, many states are in the final stages of deciding where their share of the money will go. If the trend so far holds up, 65 percent of it could wind up in the states' general funds.

There's a regularly updated state-by-state interactive map showing how the money is being distributed.

What stands out is that even states slammed by the foreclosure crisis are diverting much or all of their money to the general fund. In California, among the hardest hit states, the governor has proposed using all the money to plug his state's huge budget gap. And Arizona, also among the worst hit, has diverted about half of its funds to general use. Four other states where a high rate of homeowners faced foreclosure during the crisis are spending little if any of their settlement funds on homeowner services: Georgia, South Carolina, Wisconsin, and Maine. [...]

As you can see from our breakdown, 15 states have so far allocated over half their amounts to consumer-focused efforts. But the uses range widely. In Ohio, $75 million has been set aside to destroy some 100,000 abandoned homes. In Minnesota, the state is setting up a fund to compensate victims of the banks' foreclosure abuses.

Some examples:

' Georgia is spending its $99 million share to attract new businesses.

' Virginia put its $66.5 million share into the state's general fund without restrictions. A Democratic attempt to send the money to foreclosure and homeownership programs failed.

' Texas sent its $135 million to the state's general fund. $10 million of that is earmarked for basic services to low-income Texans. Distribution of the rest will be decided in January.

Iowa Attorney General Tom Miller, who led the coalition of attorneys general who negotiated the deal, argued that only a very small portion of the settlement was being diverted and it will 'overwhelmingly' benefit homeowners. The centerpiece of the settlement is a requirement that the banks earn $20 billion in 'credits' by helping homeowners in various ways'from reducing principal on underwater homes to bulldozing empty ones. Because the system awards only partial credit for certain actions, Miller said the settlement would bring more than $20 billion in benefits to consumers'he estimated $35 billion. Critics contend those sorts of numbers far overstate the benefits to consumers, because the banks can claim credit for some activities that were already routine.

Such a deal.