Democrats move fast on foreclosure funds
Democratic lawmakers in Sacramento are moving quickly on legislation to overturn a court ruling that would require the state to use $331 million to aid homeowners hit with foreclosures, money from a nationwide settlement with banks accused of abusive foreclosure practices.
A state appeals court in Sacramento ruled last month that Gov. Jerry Brown had wrongly used the $331 million to pay off deficits of state agencies that handle state housing bonds and consumer programs. The money for Brown’s actions has been appropriated for three years, each time with legislative approval, but the court said the administration had violated a 2012 state law directing use of funds from the mortgage settlement. The ruling said the state must spend the funds on programs directly assisting foreclosed homeowners.
This week, however, legislative Democrats rewrote two budget-related bills and moved them through fiscal committees in both houses on partyline votes. Both bills declare that Brown had properly cleared his funding decisions with the Legislature and had complied with the 2012 state law by using the money to bail out state agencies overseeing housing and consumer services.
“In the heart of the recession, the state did the best it could in allocating money toward housing measures,” Joshua Gauger, a budget analyst with Brown’s Finance Department, told the Senate Budget and Fiscal Review Committee on Thursday in a hearing on one of the bills, AB1829. He said it was aimed at “clarifying that Finance operated within the intent of the original (2012) legislation.”
“In the heart of the recession, the state did the best it could in allocating money toward housing measures.” Joshua Gauger, budget analyst
Sen. Jim Nielsen, RGerber (Tehama County), told Gauger he had “no trust” that Brown’s administration would use the funds to help homeowners victimized by the banks. But the committee’s Democratic majority voted to send AB1289 to the Senate floor, a day after an Assembly budget panel advanced a similar bill, SB861, to the Assembly floor. The deadline for final passage is Aug. 31.
A lawyer for the organizations that challenged the state’s use of the funds, led by the National Asian American Coalition, promised another legal battle if the legislation passes.
Even if the Legislature “attempts to somehow retroactively endorse” the state’s past use of the funds, “those actions were still illegal, and the governor remains under an obligation to use the National Mortgage Settlement Funds as the appellate court found they were intended — to help struggling homeowners,” said attorney Neil Barofsky.
The settlement was reached in 2012 by the nation’s five largest mortgage servicers — Bank of America, Wells Fargo, Citigroup, JPMorgan Chase and GMAC — in a suit by the federal government and every state except Oklahoma. The banks paid more than $20 billion in direct aid to foreclosed homeowners and an additional $2.5 billion to the states, including $410 million to California.
Then-Attorney General Kamala Harris, now a U.S. senator, was responsible for allocating the state’s share, after helping to negotiate the settlement and gain increased funding for California. She directed $331 million to a fund devoted to programs assisting homeowners who had been harmed by a wave of foreclosures from 200809 onward. The programs included housing counselors, legal and consumer education, and efforts to investigate and combat financial fraud.
Lawyers for the state argued that Brown’s use of the $331 million to bail out state agencies was consistent with the mortgage settlement and was not subject to judicial review. The Third District Court of Appeal disagreed.
The money “was unlawfully diverted from a special fund in contravention of the purposes for which that special fund was established,” the court said in a 3-0 ruling July 10.
Finance Department spokesman H.D. Palmer said Friday the Brown administration would appeal the ruling to the state Supreme Court.