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Brown Defends Foreclosure Fraud Settlement Raid With Talk of “Balance”

California Governor Jerry Brown defended raiding funds from the foreclosure fraud settlement meant to go to help homeowners today:

The Democratic governor said he would consider any “vital programs” that may be affected, but he suggested much of the money from the settlement with large banks would otherwise have been used for lawyers.

“Any program that will help homeowners I will take a good look at,” Brown told reporters one day after releasing his May budget revision. “We have time to work on the budget, but we’re looking for money where we can find it.” […]

Brown said before speaking to a crime victims group in Sacramento that budgeting is “all a balance.”

“Whether it’s courts or children or teachers or vulnerable people, it’s not pretty,” he said.

Brown is seeking a mix of spending cuts, borrowing and tax increases to close a $15.7 billion budget deficit.

A couple things. First, the idea that the funds would be used on “lawyers” (and a nice demonization of lawyers from a Democratic governor, there) is a gross simplification. It would be use to supply legal help and counseling for victims of foreclosure. There are reams of studies showing that, when these victims get the legal help they need to navigate either foreclosure proceedings or loan modification programs, they do much better. So the idea that Brown saved the state from filling the pockets of greedy lawyers – the money would go to groups like the Legal Aid Foundation, hardly wealthy ambulance chasers – is pretty abominable.

Second, Brown says that he wouldn’t want to harm any “vital programs.” When housing is such a major anchor dragging down the economy in the state and in the nation, any program that would lead to debt reduction and keep people in their homes can be considered vital. That includes counseling and services involving those dreaded “lawyers.”

Finally, Brown talks about “a balance” in budgeting. There’s no balance at all in what he’s doing with the settlement funds. In fact, his plan is to take them all. If you look at the relevant section of the May revised budget (p.89), described here by Alejandro Lazo, you see that the Governor plans to use $292.2 million of the funds for issues somewhat related to housing, or at least the state Department of Justice:

National Mortgage Settlement Proceeds — The National Mortgage Settlement stipulates that California will receive $410.6 million in discretionary funds for administrative costs and to support programs that benefit California homeowners affected by the mortgage and foreclosure crisis and other consumers.

The May Revision proposes trailer bill language to support the following programs:
$41.1 million paid as a civil penalty into the Unfair Competition Law Fund to offset the costs of various DOJ programs.
$44.9 million to support the DOJ’s Public Rights and Law Enforcement programs relating to public protection and consumer fraud enforcement and litigation.
$8.2 million for the Department of Fair Employment and Housing’s ongoing efforts to prevent and eliminate unlawful discrimination in housing and the prosecution of violations under the Fair Employment and Housing Act.
$198 million to offset General Fund costs for housing bond debt service for those programs funded with Proposition 46 and Proposition 1C housing bonds that assist homeowners.

But the Governor counts savings of all $292.2 million to the General Fund from this action, meaning that funding for all of this would be reduced by similar amounts. Counselors and legal aid societies would be left with nothing. And here’s the key line:

The remaining $118.4 million will be reserved for similar uses in 2013?14.

So Brown would do this all over again with the balance next year. In other words, ALL $410.6 million, almost 15% of the total cash penalty paid to the states in the settlement, would be raided by California to pay for the budget gap, under Brown’s plan. Every last penny. This is supposed to represent “balance.”

I’m glad Kamala Harris is putting up a fight. But this was baked into the cake when no strings were put on the settlement cash. There were only “encouragements” in the language to put the money to its proper use. The banks had an interest in seeing that money not used for proper legal representation for their customers so they could continue to steal from them. So the language remained loose. And given state budget woes, nature just took its course.

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David Dayen

David Dayen