Arizona Housing Alliance Executive Director Valerie Iverson explains why her organization is considering legal action after state lawmakers pass a budget that sweeps $50 million from a mortgage settlement fund.
Ted Simons: Included in the $8.6 billion budget state lawmakers passed yesterday is a $50 million fund sweep from Arizona's share of the National Mortgage Settlement fund. The governor's office and Republican lawmakers say the state is well within its rights to use the money. Critics say the move is likely illegal and certainly unethical. Joining me to talk about this is Valerie Iverson, Executive Director of the Arizona Housing Alliance, a coalition of leaders in the housing industry. Thanks for joining me.
Valerie Iverson: Thanks for having me.
Ted Simons: What exactly is the Mortgage Settlement Fund?
Valerie Iverson: About two months ago, 49 states, the federal government and five of the largest mortgage services reached a settlement in regards to some claims for fraudulent practices in the foreclosure industry. So they agreed to settle. It was a $25 billion settlement, and Arizona's share is $1.6 billion of that. The majority of the settlement money is going to be the banks working with specific borrowers and doing mortgage write-downs of those loans, but it's only the five largest banks. There's many lenders that -- borrowers that are not covered by that settlement. There's one part of the settlement that is about $100 million. A little under $100 million, those are payment to the state of Arizona. Every state is receiving a payment as a result of this foreclosure mortgage settlement. That money is supposed to be used for foreclosure prevention and mitigation. That is the fund that's being raided by the legislature to put into the general fund.
Ted Simons: Supposed to be used for foreclosure prevention and mitigation. Are the settlement terms that it must be used for those purposes?
Valerie Iverson: Well, the settlement terms say it shall be used for foreclosure prevention and amelioration of foreclosures and its effect on the market. So I think it was the suits were brought up by the consumer divisions of all the attorney general's offices across the nation. The suits were about things that happened to individual borrowers who had the robo signing and other fraudulent practices, so I believe it should go to the consumers.
Ted Simons: This money that we're talking about actually came to the attorney general's office, then deposited with the state treasurer's office?
Valerie Iverson: It has not been transferred to the states yet, but we expect it to occur any day now.
Ted Simons: That would be the pipeline?
Valerie Iverson: That's how the pipeline occurs.
Ted Simons: The state says if that indeed is the pipeline, we were hit public funds, we lost a ton of public funds because of the mortgage crisis, the housing crisis, the whole nine yards, we lost that money, this is supposed to reimburse states. Why can't we use it?
Valerie Iverson: Well, it's interesting because they did change their language in the budget. There was a Kavanagh amendment that said it was to reimburse them for costs to the state for the effects of the foreclosure crisis. But I haven't really seen any analysis of what those costs actually are. The only analysis I have seen out of the legislature is a study that showed that they actually collected more individual income taxes because so many people have lost their homes from foreclosures, they are not eligible to take the mortgage interest deduction. So 2011 income tax collections from individuals actually went up 18.5%.
Ted Simons: So when the legislature and some lawmakers say that this basically repays the state for tax revenue lost during the housing downturn, you say tax revenue wasn't lost?
Valerie Iverson: Well, that's the study that came from out of the legislature. So that's the only study that I have seen that shows any kind of connection between the foreclosure industry and a specific cost, or revenue.
Ted Simons: The lawmakers are also saying that the language, the governor's office also made this point as well, the language is somewhat vague. When it's that vague the states can -- they are not taking all the money, just #50 million. What do you make of that?
Valerie Iverson: Well, that's sort of a legal question, and we're actually going to take a legal avenue and file a legal suit against this and then I'll leave that up to the lawyers to decide the legal part of it. I'm not a lawyer. All I can say is my interpretation is this is the people have been hurt are those that have been on the street, the people who are losing their homes, the communities that have been hardest hit by foreclosures, and they are the ones that should have this money. This money is really interesting because it's the only flexible source of funding that can be used for things like homeownership counselors, legal aid, outreach, and there's no other sorts of funds that can help. A lot of people have heard stories about what it's like to go through foreclosure and the giant bureaucracy and the maze that you have to go to to be able to get the funds that they deserve. Without these home ownership counselors and legal aid to help them through that maze, they won't be able to access even the funds that are available in their settlement. Another part I want to bring up too, this settlement is only with the five largest mortgage servicers. There's many people who have loans through other banks that aren't covered by this large mortgage settlement. This $100 million could be available to them to help with principal write-down. Again, it's this flexible source. The one last point also is this any loans that are insured by Freddy Mac and Fannie Mae, my understanding is they are not covered by this settlement. I've heard that's as much as 80% of the loans in Maricopa County. So there's a big chunk of people who are in trouble, they are troubled homeowners about to lose their homes. They are not even covered by this big settlement. This $100 million can help them and help those who can get into the settlement make their way through the bureaucracy better.
Ted Simons: You will be filing suit?
Valerie Iverson: We are filing suit against this. We will be doing it as soon as we can because the money is coming into the state soon.
Ted Simons: We have to stop you there. Thanks for joining us.
Valerie Iverson: Thanks for having me.
Valerie Iverson:Executive Director, Arizona Housing Alliance;
