“NEW YORK (CNNMoney) — States are getting $2.5 billion from the national mortgage settlement, but not all of that money is going to help troubled homeowners.
At least two states — Missouri and Wisconsin — are using the funds to plug big holes in their budgets. This does not sit well with some consumer advocates, who would prefer to see the money go to help those suffering from the housing crisis.
Federal and state officials last week announced a $26 billion foreclosure settlement with five of the largest home lenders over allegations of improper foreclosures based on robosigning and faulty paperwork. The vast majority of the funds will be used to provideprincipal reduction or refinancing, as well as payments to borrowers who lost their homes.
States, which took the lead in negotiating the deal, also got a tidy bundle. The settlement says the attorneys general may distribute the money to foreclosure relief and housing programs, such as counseling, legal assistance and mediation initiatives.
But, like in the 1998 tobacco settlement that was supposed to fund health programs, states have some leeway in how they use the money.
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