Mortgage settlement money diverted to boost state budget

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PHOENIX -- From long lines for mortgage help, to foreclosure signs in front yards, it's obvious Arizona homeowners are still struggling.

That's why it was welcomed news when, in February, the state announced it would get nearly $98 million in a settlement with five of the nation’s biggest banks. States accused the banks of committing mortgage fraud.

The settlement money was intended to go towards helping homeowners, but now more than half of that settlement money -- $50 million -- could go towards the state's general fund to be used however the state wants.

“It allowed them to put $425 million into a rainy day fund instead of $375 million,” attorney Tim Hogan said.

Hogan is the executive director of the non-profit law firm Arizona Center for Law in the Public Interest. He opposes the money transfer and on Thursday filed a lawsuit against Arizona's Attorney General to stop it.

The Attorney General is the trustee for the settlement money, and oversees how it’s spent.
The suit claims the legislature acted unconstitutionally in April when it passed Senate Bill 1523, which requires the AG to split off the $50 million.

Attorney General Tom Horne said he opposed the bill, but won't fight it because he said the state will simply take it out of his office's budget anyway.

“There's no way that an Attorney General can fight both the legislature and the governor if they're united on a budget item,” Horne said. “They control my budget. It would be the equivalent of me killing myself, and that's not good public policy.”

Horne also wants homeowners to know that the mortgage settlement is just a fraction of the $1.6 billion dollars that Arizona received to help homeowners with programs.

“It's 50% of the money that I administered, but it's 5% of all the money made available to help keep people in their homes,” he said.

While $50 million may not seem like a lot in the big picture, Hogan argues Arizona homeowners can use all the money they can get.

“There are a lot of people right now in foreclosure who can use the kind of assistance that this money was specifically intended to provide,” Hogan said.

According to a recent report by Enterprise Community Partners, 27 states have said they will use all the settlement money for housing help. Six states will use none of it to help homeowners. The report also lists how Arizona is expected to spend its settlement money.