State planning housing issues legal aid fund

SACRAMENTO — Gov. Gavin Newsom is proposing to deposit the state’s share of a 2012 nationwide bank settlement into a legal assistance fund for renters and homeowners, following a California Supreme Court ruling last month that he must use the money for its intended purpose.

Newsom announced the plan Wednesday with a visit to a legal aid clinic in Los Angeles. Pending the Legislature’s approval, California would redirect $331 million previously spent on debt repayment into a trust for nonprofits that assist with borrower relief in foreclosure cases and represent renters facing eviction.

“It’s a significant challenge in this state that

will require not only that magnitude of support but much more,” Newsom said during a news conference. “It is insidious what’s happening.”

The money comes from California’s portion of a settlement with the country’s five largest mortgage servicers — Bank of America, Wells Fargo, Citigroup, JP Morgan Chase and GMAC — that had been accused of abusive lending practices linked to the economic recession in 2008. That settlement provided $20 billion in direct aid to homeowners across the nation who were hit by the ensuing wave of foreclosures and $2.5 billion to states, including $410 million for California.

Sen. Kamala Harris, then the state attorney general, negotiated to put most of the money into services for homeowners, such as foreclosure hot lines and legal aid.

But thenGov. Jerry Brown and the Legislature subsequently raided the fund to balance the state budget by paying off housing bonds and other debts owed by state agencies.

Community groups sued in 2014 and the legal battle waged for five years, even as the courts repeatedly ruled that the state must restore the money.

Brown appealed the decision and, in 2018, the Legislature passed a law retroactively declaring that the settlement had been spent properly. Newsom continued to defend the diversion of the fund until July, when the Supreme Court declined his request to review an appellate court decision striking down the new legislation.

The National Asian American Coalition, a Daly City nonprofit that provides counseling and down payment assistance for homebuyers, was one of the plaintiffs in the lawsuit. President and CEO Faith Bautista said she was angry with state officials for taking so long to do right by victims of the mortgage crisis.

“The reason why you’re doing that is because you have no choice,” she said, referring to Newsom and other state officials. “They should have done this from the very beginning when they lost.”

Bautista said neither her organization nor others that sued had been consulted on the governor’s proposal. She said they would keep up the pressure to ensure the money finally benefits homeowners in distress.

“I’m sorry I cannot trust you,” she said. “You tried to take that money and you appealed four times.”

In Los Angeles, Newsom applauded the groups that sued for “exercising leadership and forcing the state to come to grips with its previous determination.”

“I think this is a much better proposal,” he said, “and in this respect, they deserve an enormous amount of respect.”

He linked his plan to previous calls for state laws that would make it easier to build new housing and expand tenant protections, expressing support for a proposal by Assemblyman David Chiu, DSan Francisco, that would cap annual rent increases at about 10%.

“The issue of housing unaffordability is destroying not just the California dream, but the American dream,” Newsom said.