Texas Last State to Appropriate Mortgage Settlement Funds

All eyes are on Texas legislators who in the next few days will determine how the state may use roughly $124.7 million in national mortgage settlement funds while some insiders worry about potential diversions.

Consumer advocates, who fear legislators may divert the full amount to general state funding, are calling on Texas lawmakers to not turn their backs on homeowners who were hurt in the foreclosure crises.

Texas still is the only state that has not reached a final decision since the state’s comptroller deposited the settlement money into the general fund with no earmarks worrying consumer advocates legislators will follow the example of other states that already have decided to divert settlement funds into non-housing-related use.

“If the Texas Legislature uses all of the money for general funding, it will put them among the worst settlement violators," warns Frank Woodruff, director of the National Alliance of Community Economic Development Associations, which represents 30 state and regional community development associations in 26 states and has been tracking the allocation of the settlement funds throughout the country. Settlement funds are not tax dollars but “money that was clearly intended to provide foreclosure relief.”

While Texas legislators have not yet made their final decision, Woodruff and other consumer advocates are trying to prevent them from joining legislators from the nation’s "worst settlement violators."

What makes things worse, according to Texas Foreclosure Prevention Task Force chair JoAnn DePenning, is that Texas is still suffering from the foreclosure crisis, as shown by CoreLogic data that indicate Texas had the fifth highest number of completed foreclosures and 53,000 Texans lost their homes due to foreclosure during the 12 months ending in March 2013.

Combined with high mortgage delinquency rates and chronically low credit scores, settlement money could help the local economy “regain some stability," she added.

Based on the level of damages suffered during the foreclosure crisis the nation’s five largest banks agreed to deliver the highest payments to California, Florida and Texas.

Texas is the last state in the nation to determine how to spend its share of the $2.5 billion in cash payments made to 49 states and the District of Columbia as part of the 2012 national mortgage settlement.

According to Woodruff, these states are Georgia, South Carolina, Missouri and New Jersey.

For example, he explains, Georgia legislators used the $99 million payment for corporate tax incentives even though their state is among the hardest hit by the crisis.

In South Carolina $10 million was used to give corporate tax incentives with the remaining $31 million into the state’s general fund.

New Jersey’s legislators “used creative accounting to put its entire $72 million cash payment into the general fund,” he noted, while in Missouri lawmakers decided to use all of the $40 million settlement money to fill the financial gap they had created making large cuts to their higher education budget.

Meanwhile the remaining 13 states and the District of Columbia invested the money in homeowner assistance programs.