What’s Happening to the National Mortgage Settlement Funds?


We support reforms to the financial marketplace that protect consumers from unscrupulous banks and lenders.

By Consumers Union on Friday, October 19th, 2012

by Norma Garcia


In February 2012 The U.S. Department of Justice and Attorneys General from 49 states announced a $25 billion settlement with five major banks in the country to settle allegations of fraudulent robo-signing of mortgage documents and other abusive practices that contributed to a record number of foreclosures in recent years.



However, yesterday the Wall Street Journal reported a troubling trend.  Several states have shifted the funds intended to help struggling homeowners to other purposes unrelated to the National Mortgage Settlement.

The Wall Street Journal cited a new report entitled, States Fall Short on Help for Housing, issued yesterday by the nonprofit Enterprise Community Partners, Inc. The new report closely analyzed how states have used their allocated funds.


The new report states:


  • Six months after finalizing the landmark $25 billion National Mortgage Settlement, the District of Columbia and the 49 states who were parties to the settlement have been allocating and distributing their respective shares of the $2.5 billion that was designated for them, but less than half of the announced expenditures will be used as intended.


  • Direct payments to the states were intended to help prevent foreclosures, stabilize communities, and prevent or prosecute financial fraud.


  • To date, states have announced plans to spend $966 million for housing and foreclosure-related activities, while $988 million has been diverted to states’ general funds or for non-housing uses.


The report also tracks how well states have adhered to the use of the settlement funds.  According to the report, eight states have deviated from the agreed-upon use of funds, through various means.  The report cites California, Arizona and South Carolina as particular examples of states where National Mortgage Settlement funds have been diverted away from their intended use.  See the report for a detailed chart on the use of the Settlement funds by each of the 49 states involved in the settlement.


We want to hear from you.  Should the states use National Mortgage Settlement funds for purposes unrelated to the Settlement?

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