In The News
How Walker hijacked foreclosure settlement
By Dominique Paul Noth
Editor, Milwaukee Labor Press
Posted March 21, 2012
It was an astonishingly good deal, reminiscent of the tobacco settlement negotiated way back in the 1990s by then Atty. Gen. Jim Doyle, but frittered away by a Republican governor named Scott, in that case McCallum.
This new settlement with five major mortgage lenders -- announced in February and finalized in federal court in March – may have billons less, but proportionately was still remarkably big and innovative. It took months of negotiations by the US justice department and state attorneys general, 49 in all participating (a dispute with California about who had more homes underwater led Florida to belatedly withdraw), but most were tagalongs such as Wisconsin under state Atty. Gen. J.B. Van Hollen. The heavy lifting was accomplished by the likes of the US, New York State and Iowa.
But even before the settlement was officially announced there was hijack plotting underway by yet another Wisconsin governor named Scott, this time Walker.
Under the deal, the nation's top banks agreed to provide $26 billion of their own money supervised by an outside regulator to help address the mortgage crisis their own behavior had caused. About 750,000: foreclosed homeowners are expected to qualify and there is $17 billion within to apply to loan modification programs and other forms of consumer relief. Principal banks in the deal are Bank of America, Citigroup, Ally Financial (formerly GMAC) and Chase
It all began with a coordinated lawsuit by state attorneys general with the US climbing aboard -- demanding action by financial institutions for the damage done by freewheeling and unstrung mortgage contracts, credit default swaps and other maneuvers that left consumers with bloated debt and holding mortgages worth more than homes.
Now the nation is recovering and the banks came through TARP and are sure doing well. But they face a new bitterness toward Wall Street, new doubts on Main Street -- and a new administration that has made it clear that contrition is not enough. So the top banks agreed in this settlement to supervised remorse. The $26 billion settlement creates an outside monitor to assure the relief gets to financially injured clients -- and there was no barrier in the deal to further legal action, according to government spokesmen who took this reporter inside the deal.
But recognizing how varied state financial programs were, $5 billion was reserved to participating state governments (including about $750,000 to the federal government). Wisconsin's share of the division is about $140 million, but only about $36 million of that was available to the state itself, the rest going directly from the banks to victims.
Unfortunately for foreclosure victims, the settlement finalized just as Walker got bad news that undid his reputation for balancing state budgets. Of course, a balanced budget is required under the law, but it sure makes great headlines to claim that debt reduction is your focus -- as long as the public doesn’t look too deeply at how the outlays are reduced and what questionable revenue projections got you to zero. If you only care about the balance sheet, you don’t question methods that rip $1.6 billion out of education aid over two years.
But just as Walker was threatened with a strong recall effort came news he could no longer assure the public that he had wiped away the state deficit. In fact, falling revenue projection had left a $140 million hole. (Did you notice that $140 million is also Wisconsin's share of the mortgage deal with the banks? Imagine the temptation to substitute – except for those darned federal rules that only allowed each state government to control a sliver.)
But there was a $36 million loophole and the day the deal was announced, Walker and Van Hollen hijacked nearly 80% of what they could -- "applying" $26 million of the $36 million mortgage foreclosure funds to general reduction of the projected state deficit he had previously told the public didn't exist.
Outraged legislators tried to introduce a bill to commit all the Wisconsin's share to direct consumer relief. Members of Congress demanded investigation by the US Attorney General. Similar insistence has been introduced at the Milwaukee Common Council.
Mayor Tom Barrett went on national TV to itemize how many thousands of foreclosed homes in Milwaukee were robbed by what he termed Walker’s “bait and switch,” the same sort of trickery that seduced people into mortgage deals and caused the meltdown.
The venal duo seemed undeterred by the storm of protest. Walker defended his action by citing “direct damage done to the state of Wisconsin” by the financial crisis – hoping no one would notice he was grabbing something specifically aimed elsewhere, violating as Barrett noted, “the spirit of the settlement.”
Then Walker claimed "many other states" are taking a similar approach with at least a portion of the settlement money.
State attorneys general meeting in D.C. recently confirmed that only one other state, Missouri, is using its portion outside mortgage relief – but earmarked to mitigate state reductions in higher education. Walker was taking even more money from higher ed to close his deficit projections. Another lie exposed, another difference underlined.
The officials in D.C. would not publicly criticize colleague Van Hollen (though some may have done so privately), but agreed all this money from the banks was supposed to help their consumers specifically while still giving individual states’ flexibility.
In the past, when Walker tried to bend the intentions of programs created with other governments, such as Medicaid, he was forced to back off when denied waivers on basic regulations. In this case, to this point, he is standing by this blatant finagling. It will take constant mocking – and probably a new governor -- to force a change.