On housing policy, the New York Times has a knack of getting to the nub of the issue on a bit of a time delay. Weeks after the publication of the foreclosure fraud settlement, they figured out that the settlement would allow banks to get credit for things they already do in the normal course of affairs. Today, they’re out with the bombshell that states are diverting the hard dollar funds from the settlement, money meant to go to help homeowners, to fill budget gaps. Only this has been happening almost immediately since the announcement of the settlement back in February. I am pleased that the NYT gets to the point, but they could quicken the pace.

The story does link to a formal study on this phenomenon, from Enterprise Community Partners, a national affordable housing group. They find that 27 of the 50 states are using their funds wholly for housing, while the other 22 are either using part or all of the money for other purposes, or haven’t made a decision (I know there are 50 states; Oklahoma didn’t participate in the settlement). This survey was taken before California Governor Jerry Brown announced that he would divert all the settlement money, over the course of two years, into the General Fund.

Only 10 of the states have completely decided how to use the funds; the other 40 are in the process of deciding, so there is still time for this outlook to improve, or get worse. Of the ten states that have completed the process – Arkansas, Colorado, Georgia, Idaho, Indiana, Massachusetts, Maine, Minnesota, Nebraska and Utah – six of them siphoned off some or all of the settlement money (Georgia, Idaho, Indiana, Maine, Nebraska and Utah). The next closest state to completing the process, Missouri, would siphon all the money away to their General Fund; that proposal has passed their state House. The best outcome so far came from Minnesota, which will simply distribute their $41 million to “qualifying homeowners.”

Even many of the purposes that nominally go toward “housing” in the states hardly reflect the intended purpose of the money. In Ohio, much of the funds will go toward bulldozing homes, for example. In North Dakota, they will spend it on housing police officers in counties that have grown in population during the state’s oil boom.

The bottom line is that, with big states like California and Texas likely to siphon off the funds, and many more moving in that direction, we could end up with a situation where almost half, if not more, of the $2.5 billion penalty, distributed to states for crimes against homeowners, doesn’t get anywhere near those homeowners who need help.

And keep in mind, this $2.5 billion penalty, a portion of the overall settlement, is but a drop in the bucket compared to the damage inflicted by the foreclosure crisis and the fraudulent activities of the mortgage industry.