National Mortgage Settlement–Purpose Yet Unfulfilled

Sitting in the Texas General Revenue account is $125 million received as Texas’ cash payment share of the National Mortgage Settlement.  This payment is part of agreement settling charges of misconduct by five national banks, misconduct that resulted in the premature and unauthorized foreclosures of single-family residential mortgages in Texas.

The settlement states: [Bullet formatting added]

“To the extent practicable, such funds shall be used for purposes

• intended to avoid preventable foreclosures,
• to ameliorate the effects of the foreclosure crisis,
• to enhance law enforcement efforts to prevent and prosecute financial fraud, or unfair or deceptive acts or practices and
• to compensate the States for costs resulting from the alleged unlawful conduct of the Defendants.

Such permissible purposes for allocation of the funds include, but are not limited to,

• supplementing the amounts paid to state homeowners under the Borrower Payment Fund,
• funding for housing counselors,
• state and local foreclosure assistance hotlines,
• state and local foreclosure mediation programs,
• legal assistance,
• housing remediation and anti-blight projects,
• funding for training and staffing of financial fraud or
• consumer protection enforcement efforts, and civil penalties.“

However, the office of the Attorney General of Texas has interpreted this language as a non-binding statement of intent, and has determined that $125 million of the total $135 million cash payment should be placed in the State’s General Revenue account rather than directly dedicated to the purposes of the settlement.  (Under Texas Code 402.007 the first $10 million of any settlement goes to the state supreme court to “provide basic civil legal services to the indigent.”)  This contrasts with the 1998 Tobacco Settlement, which included stronger language directly dedicating portions of the cash settlement for specific health-related programs.

Placing the money in General Revenue requires the Texas Legislature to act to fulfill the purposes of the settlement.  Over fifty organizations in Texas (including TXLHIS) have signed on to the statement “We support using funds from the national mortgage settlement for housing and housing-related activities.”  This money came from acts that made housing fail for Texans, and should go to making housing work for Texans.

With our bi-annual legislative cycles, Texas lags behind other states in acting to direct the funds to the purpose of the settlement.  A study by Enterprise finds that the majority of states are using or plan to use most, if not all, of their funds for housing-related activities.  This study found:

• 25 states will spend funds on legal assistance to homeowners
• 21 states will spend funds on housing counseling
• 17 states will spend funds on law enforcement or more litigation
• 14 states will spend funds on marketing or outreach to educate residents about foreclosure-prevention options
• 13 states will spend the funds on foreclosure prevention
• 8 states will spend funds on affordable housing programs
• 8 states will spend funds on foreclosure mediation programs
• 7 states will spend the funds on neighborhood stabilization activity
• 7 states will spend funds on foreclosure prevention hotlines

Now that the 83^rd Legislature has convened, the time has come for Texas to join the ranks of states working to fulfill the purpose of the National Mortgage Settlement.