You can now add Maine to the roster of states planning to use at least some of the money distributed by the five leading banks as part of the foreclosure fraud settlement for the purposes of patching up its budget rather than helping homeowners. In an interesting story by Bill Nemitz of the Portland Press-Herald chronicling Tom Cox, the foreclosure defense attorney who did the original deposition against Jeffrey Stephan that uncovered robo-signing, we get this:

Maine, with its recent average of abut 6,000 foreclosures a year, will get a mere $21 million.

Of that, $7 million will go to direct relief for borrowers who are in default on their mortgages, $1.9 million will be cash compensation for those who already have lost their homes, and $4.5 million will help borrowers who are current on their payments refinance their loans.

That leaves $8.2 million for foreclosure prevention programs, legal assistance to homeowners and the state’s general fund.

That $8.2 million means a lot to Cox, who continues his volunteer work to this day and laments that Pine Tree Legal Assistance has but one paid staff attorney to help poor Mainers fend off foreclosure.

“We’re all on pins and needles here, saying we really need a substantial chunk for housing counseling and defense work,” Cox said. “And I’m terrified that our governor is going to see this as a solution to his (Department of Health and Human Services budget) problem.”

(Cox’s fears are well-founded. Contacted late Thursday, Attorney General Schneider said the $8.2 million will be carved up three ways — $500,000 for Pine Tree Legal, $2 million for the Maine Bureau of Consumer Credit Protection, and $5.7 million for the general fund.)

So that’s $5.7 million out of the $8.2 million direct payment to Maine, or 70% of the proceeds, going to the general fund. And Pine Tree Legal, which as Cox says has one paid staff attorney for foreclosure efforts will get 11 times less the amount that the general fund will get to plug their budget hole.

Maine joins Wisconsin and Missouri as states that have announced their general fund will benefit from a settlement meant to help homeowners. There’s nothing illegal about this; the new executive summary posted at the National Mortgage Settlement site says this about payments to the states:

Payments to the States
The remaining settlement funds, approximately $2.5 billion, will be paid to the participating states. 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.

That’s essentially a license for states to take the money as a “penalty” and put it into their general funds. Three out of 50 have already done so. We’ll continue to track who else will engage in this, and clearly there will be more. You honestly think Rick Scott or Rick Perry won’t use this money to plug their budget holes?

And while this doesn’t violate the terms of the settlement as far as we know (a reminder that there are no terms yet), it certainly violates the spirit. Every news outlet in America posited this settlement as delivering help for homeowners. Help for the Department of Health and Human Services budget, or the higher education budget, or help to prevent having to roll back corporate tax cuts, was not at all on the menu.

As for Cox, the foreclosure defense attorney, what does he think of the settlement?

Can we say “vindication?”

“I think that’s too powerful a word, from the way I see it,” Cox replied after news broke of the settlement. “For me, it’s recognition of the problem.”

David Dayen

David Dayen