How the Midwest Will Spend Its Foreclosure Settlement Scrill

April 26, 2012 § Leave a comment

Earlier this month, on April 6, the foreclosure settlement was approved in federal court, despite its obvious flaws.  But as they say, when life gives you lemons, you make lemonade–so what do you do with a bad deal like the foreclosure settlement?  With the $1.5 billion it netted as a region, the Midwest has come up with some possible answers, although there’s always room for improvement.

Some parts of the settlement are common to every state, including stronger law enforcement to tackle fraud, checks of $1,800 made out to victims of foreclosure fraud (an incredibly small compensation) and loan modifications for those who are outstanding on mortgage payments.  Here is a provisional list of some of the unique things the Midwest is doing with the rest of their allotment.

Ohio

Ohio Attorney General Mike DeWine has dedicated some settlement funds to demolishing abandoned homes.  He and others, including US representatives Steve LaTourette and Marcia Fudge, argue that the blight of abandoned homes further hurts Ohio’s property values, which have already taken a nosedive since the financial crisis.  Last week, LaTourette and Fudge stirred up support for the proposed Restore Our Neighborhoods Act, which seeks $4 billion in funds for cities nationwide to speed up the demolition of abandoned properties.

As the overlooked hip-hop group Black Planet once said, “Out with the old and in with the new”: the drive to demolish certainly has its merits, but this blog would like to see more resources aimed at keeping homeowners in their homes in the first place.  Foreclosure prevention counseling in Cleveland is growing more and more popular, and it would be a mistake if groups like Empowering and Strengthening Ohio’s People didn’t receive some financial assistance for their work in the state’s communities.

Indiana

About 13,000 Indiana homeowners were wrongly foreclosed upon by the banks, and for their troubles, Attorney General Greg Zoeller plans to set up a program for assisting low-income homeowners with utility bills.  However, as they stand, the state’s anti-foreclosure programs are still underutilized, showing that agencies could use more resources to reach their clients.

Michigan

Attorney General Bill Schuette might have the most detailed plan yet.  In addition to beefing up prosecutors of foreclosure fraud and direct financial assistance for struggling homeowners, Michigan plans to disperse…

  • $20 million for foreclosure counseling
  • $5 million in assistance for veterans defrauded by mortgage servicers
  • $25 million in assistance for students made homeless by the crisis

In the Detroit area alone, there is 40 square miles’ worth of vacant properties (in total, an area larger than a city the size of Miami).  In case Schuette needs further inspiration, many residents there have begun formally and informally annexing adjacent properties to keep the neighborhoods clean and free of blight.

Illinois

Attorney General Lisa Madigan fought hard for principal reductions on mortgage holders near foreclosure, one of the better parts of the foreclosure settlement. She says Illinois’s share of the settlement will go towards legal assistance programs to help homeowners defend themselves against looming foreclosures and stay in their homes.  Madigan argues this will create a domino effect: keeping homes occupied keeps the surrounding communities viable.

Missouri

Missouri governor Jay Nixon has used some of the nearly $200 million the state received to avoid a budget cut to the state’s universities.  At the Attorney General’s office, Chris Koster has launched a statewide education campaign to connect struggling homeowners with the state’s foreclosure prevention resources–an important step in seeing the settlement through.

Wisconsin

Always busy these days, Wisconsin’s Governor Scott Walker has also siphoned part of the state’s allotment away to close the state’s budget gap.  Walker faces a recall election this June, so the state’s plans for the rest of the settlement money might change.

And if they do, the Chicago Tribune‘s John McCarron has some plain and simple advice for the attorneys general of the Midwest: don’t let this aid go to waste. This is much easier said than done.  In the past, struggling families who have tried to tap this kind of aid get tangled up in impossibly complicated webs of paper shuffling and bureaucracy.  His solution?

Try this: Hire capable and trustworthy nonprofit organizations to recruit and screen qualified applicants, help them submit paperwork and then deliver their payments, along with counseling on how to put their finances in order.

As an example, McCarron points to Neighborhood Housing Services of Chicago.  “NHS,” he explains, “is run by a governing board that includes some of Chicago’s most prominent bankers, insurance executives and charitable foundation officers.” It couples this expertise with community organizations to build “street cred”–connections with churches, neighborhood organizations, and community organizers.  With the ability to sit down face-to-face with clients, these coalitions can resolve troubled finances in a matter of minutes–much faster, more effective, and friendlier than an underpaid bank customer service representative on the other end of a long-distance phone connection.

Mark Jacobs edits the MSCS blog.

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