Don't Divert $25 Billion Mortgage Settlement Fund From Victims

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The NAACP is working to ensure that the settlement monies are used to aid homeowners in need of assistance and prevent further predatory practices. Communities need to get the funding they so deeply need to restore their American dream.


In February 2012, a joint state-federal settlement was reached with the country’s five largest loan servicers --Ally/GMAC, Bank of America, Citi, JPMorgan Chase, Wells Fargo-- to addresses a pattern of unfair and predatory mortgage servicing practices.

The terms of the settlement indicated that as much as $25 billion in relief could be provided to distressed borrowers and direct payments to federal and state governments.  While $25 billion is a significant number, the most important number is the amount that will reach your community.

The settlement funds are divided into two key parts – credits for affected homeowners and payments to the government entities.  Twenty billion, the bulk of the settlement, is in the form of credits for victims of the predatory practices. These credits will be allocated by formulas that determine the amount of financial relief extended to borrowers as related to the costs of the activities provided by the servicers. 

At least $10 billion of this amount will be directed towards reducing the principal on loans to qualified borrowers who are “underwater”. Underwater borrowers are those who owe more on their mortgages than their homes are worth.  It is estimated that one million current borrowers may benefit from this portion of the settlement. 

Another $3 billion is to be directed to help underwater borrowers refinance their mortgage loans. An additional $7 billion will go towards other programs to help unemployed borrowers, service members, transitional, and community programs.

The remaining $5 billion of the $25 billion settlement will be payments to government entities, including  $2.5 billion to
the state attorneys general,  $1.5 billion to borrowers who lost homes to foreclosure --about 750,000 persons will receive approximately $2,000 each-- $912 million to the federal government, and $90 million to various state organizations.

According to Enterprise Community Partners, Inc, a national non-profit organization that provides expertise for affordable housing and sustainable communities, many states will spend the funds on needed activities such as foreclosure prevention or neighborhood stabilization activity, housing counseling, legal assistance to homeowners, marketing or outreach to educate citizens about foreclosure-prevention options, foreclosure mediation programs, loan modification programs, foreclosure prevention hotlines, and foreclosure scam rescue programs.

However, some states are considering redirecting these funds to programs not associated with the housing crisis.

ProPublica, an independent, non-profit news organization, found that in Arizona and California, two of the states which were most severely impacted by the foreclosure crisis, the governors of these states have intervened in the state attorneys general’s proposals to use the funds on homeowner-related activities.

In Arizona, state lawmakers and the governor repurposed $50 million of the $98 million coming to the state.  There will be no new spending of the monies even though the budget legislation stated that the money should be used to fund departments related to housing and law enforcement.  Housing advocates are planning to file a lawsuit to stop the transfer of monies.

In California, Governor Jerry Brown recently released a proposed revised budget that uses the state’s $411 million from the settlement for existing housing programs and to help fill the state’s $16 billion budget deficit. Governor Brown’s actions came after Attorney General Kamala Harris had prepared a proposal to spend the money on counselors, lawyers, and other consumer-related efforts.

Attorney General Harris opposes the Governor’s proposal which must be approved by the state legislature before it becomes law. Other states that plan to divert most or all of settlement monies into their states’ general fund include the State of Wisconsin, Texas, Georgia, Missouri and Virginia. 

While the entire economy is struggling to remain on its feet, it is critical that these funds are targeted to restabilize the housing markets in communities around the country.  Programs like foreclosure prevention, foreclosure assistance, housing counseling, legal assistance, criminal or civil investigations and enforcement activities, and programs to address community blight are essential components to rebuilding strong and safe neighborhoods for all Americans.

That is why the NAACP is working with consumer advocacy organizations and others to ensure that the settlement monies are used to aid homeowners in need of assistance and prevent further predatory practices.  Communities need to get the funding they so deeply need to restore their American dream.

More information on the State Attorneys General Settlement can be found at  Further information related to the monitoring of these funds can be found at To learn more about the work of the NAACP Economic Department, visit our website at

Charles Lowery is Director of Fair Lending, NAACP Economic Department

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