How Virginia plans to spend $69 million mortgage settlement
As you may have heard, Virginia recently received a lot of money from the National Mortgage Settlement agreement. Some of this money will go directly to home owners in need, some will come to directly to the State to offset the costs of the housing crisis. Below is a breakdown of all the funds coming to Virginia:
- Virginia’s home borrowers will receive an estimated total of $409,937,551.22 in benefits from loan term modifications and other relief.
- Virginia’s borrowers who lost their homes to foreclosure from January 1, 2008, through December 31, 2011, and suffered servicing abuse qualify for approximately $31,301,320.91 in cash payments.
- The value of refinanced loans to Virginia’s underwater borrowers will be an estimated $84,309,742.00.
- The Commonwealth will receive a direct payment of $69,657,121.00.
- The Bureau of Financial Institutions at the State Corporation Commission, as Virginia’s banking regulator, also joined the settlement and will receive an additional $1,000,000.
The $69 million direct payment to the Commonwealth is what Virginia could use to address the costs of the housing crisis such as the money Virginia had to spend for foreclosure prevention counseling. This $69 million was a great opportunity to invest in rebuilding home ownership in the Commonwealth. In his presentation to the Senate Finance Committee, Attorney-General Ken Cuccinelli noted this $69 million coming directly to the Commonwealth:
Preference that money be used for foreclosure prevention or counseling programs, or to enhance consumer protection efforts to prevent and prosecute financial fraud.
The Virginia House of Delegates and the State Senate released their respective versions of the State Budget this past Sunday Feb 19th and neither body used the $69 million settlement for housing. Neither body included any money in the budget for a Housing Trust Fund or any significant investments in addressing the housing crisis many Virginians are still stuck in. Both bodies used the $69 million from the national mortgage foreclosure settlement for aid to local governments and capitalizing a new Fund created to mitigate impact in Virginia of anticipated Federal Budget cuts.
In explaining the use of these funds, Senate Finance Chairman Walter Stosch says:
We are also recommending that the proceeds from the recent mortgage servicing settlement be used, in part, to reduce the “Aid to Localities” reversion of $50 million included in the budget as introduced. This action will give greater flexibility and financial support to localities as they address the impact of the Virginia Retirement System rates and employee compensation actions.
In a more detailed explanation, the General Government and Technology Subcommittee of Senate Finance said:
Finally, in the area of General Government, I want to mention our recommendations for allocation of the funds available to the Commonwealth under the recent mortgage servicing settlement. Under the terms of this settlement, Virginia will receive approximately $69 million. We recommend creation of a “Nonrecurring Reserve Fund”. Monies from this fund would be available to further reduce the existing reduction in aid to localities by up to $50 million in FY 2013, with any remaining funds to be allocated to the FACT fund.
In the State Senate’s version of the budget, the $69 million from the mortgage settlement is in Item 472.10 #1s. The information below is copied directly from the subcommittee report on the budget:
General Government Subcommittee Item 472.10 #1s
Central Appropriations FY 12-13 FY 13-14
Central Appropriations $61,750,000 $0 GF
Page 363, following line 15, insert: “472.10. Non-recurring Reserve Fund $61,750,000 Fund Sources: General $61,750,000.”
There is hereby appropriated to this Item $61,750,000 the first year from the one-time deposit to the general fund pursuant to the Mortgage Servicing Settlement. These funds shall be used for the following purposes in priority order:
1. Fund any shortfall in funding of the one-time three percent bonus payment for state employees, as authorized in Item 468, of this Act.
2. Up to $50,000,000 of any funds remaining after satisfaction of the requirements of A.1 of this Item shall be used to offset the reductions in local aid set out in Item 472 of this Act, Reversion Clearing Account – Aid to Local Governments.
3. Any funds remaining after satisfaction of the requirements of A.1 and A.2 of this Item shall be transferred to further capitalize the Federal Action Contingency Trust (FACT) Fund set out in Item 469.J, of this Act.”
Explanation: (This amendment provides $61.8 million GF in the first year for creation of a Non-recurring Reserve Fund. These general funds are derived from the Commonwealth’s one-time payment under the Mortgage Servicing Settlement Agreement.)
The budget released by the Virginia House of Delegates uses the money in a similar, albeit more opaque, way. These are items 469 #1h, 469 #2h, 469 #3h, and 472 #1h. In his letter about the House budget, Appropriations Chairman Delegate Lacey Putney says:
Second, our budget will restore $70 million in aid to localities. You may recall over the last several years one of the balancing strategies was to reduce local aid by $60 million each year. Making substantial strides in phasing-out this structurally unbalanced practice was a top priority of the Committee.
Delegate Putney does not mention the National Mortgage Settlement, or where this $70 million comes from. The Technology Oversight & Government Activities Subcommittee of the House Appropriations Committee describes this new funding in more detail:
Mr. Chairman, a number of members expressed concern about the financial well-being of their localities, and I want to extend my thanks to you for directing the resources necessary to this Subcommittee to address this issue. Consequently, the Subcommittee is recommending reducing the local aid reversions contained in the current budget by $70 million over the biennium.
The overview report of the House budget summarizes how this money was allocated:
Local Aid Reductions and FACT Fund
- Provides $32.5 million in FY 2013 and $37.5 million in FY 2014 to reduce the total amount of local aid reverted to the Commonwealth by localities.
- Reduces local aid reversions by $70 million – from $120 million to $50 million for biennium
- Authorizes a total of $50.0 million for the Federal Action Contingency Trust (FACT) Fund
- Provides $30.0 million in FY 2012 and authorizes the use of $20.0 million from FY 2012 balances to further capitalize the Fund
- $7.5 million of the FY 2012 amounts are set-aside to continue providing support for BRAC-Oceana in FY 2013
- Provides three criteria for use of fund:
- to address localities affected by the 2005 BRAC or subsequent BRAC recommendations;
- to continue statutorily-required federally mandated services at the present level if federal reductions are imposed; and
- to address economic development opportunities to transition industries negatively affected by BRAC or federal reductions
- Establishes FACT Fund Approval Commission to evaluate proposed uses of the FACT Fund and recommend approval or denial to the Governor.
- Governor must also notify the Chairmen of House Appropriations and Senate Finance Committees in writing about any distribution of money from the FACT Fund.
Speaking about the House budget, Speaker Bill Howell makes no mention of the $69 million from the National Mortgage Settlement. He does mention reducing cuts to local government:
Further, the House budget provides help to our localities by providing $138 million in inflation adjustments over the introduced budget and restoring $70 million in aid to localities.