Six months ago, the state of Maine received $6.9 million, its share of a landmark national settlement between states and the nation's five largest banks that engaged in foreclosure abuse.
The money was supposed to be used for consumer-related efforts to assist affected homeowners and to help prevent future foreclosures.
But only a small amount of that total -- $1.5 million -- went to fund direct assistance. About $1 million went to the Bureau of Consumer Credit Protection, which runs the state's foreclosure diversion program. Another $500,000 went to Pine Tree Legal, a nonprofit law firm that assists low-income Mainers in legal matters and runs a foreclosure prevention program.
The balance, $5.4 million, went into the state's General Fund.
Language in the settlement, negotiated by multiple state attorneys general, said the funds were to go "to foreclosure relief and housing programs, including housing counseling, legal assistance, foreclosure prevention hotlines, foreclosure mediation and community blight remediation. A portion of the funds may also be designated as civil penalties for the banks' misconduct."
The last sentence gave states discretion to divert funds into their general funds. Many states did. According to an analysis of the settlement money last month by ProPublica, an online investigative news organization, 40 states put at least some money into their general funds. Texas diverted its entire share. Others states, such as New York and Illinois, used the entire amount to aid homeowners. Maine was somewhere in the middle.
When Maine Attorney General William Schneider announced the settlement and Maine's involvement in February, he said it was "the best first step to get relief directly to eligible Maine borrowers who were harmed."
Linda Conti, head of consumer protection at the Maine Attorney General's Office, said recently that the $5.4 million was put into the General Fund to offset increases in other areas caused by the housing crisis. When people lost homes, they relied more heavily on assistance programs, driving those costs higher, she said.
The diversion does not appear to violate the terms of the settlement agreement, although a lawsuit has been filed in Arizona to try to prevent that state from using funds to balance its budget. Arizona Gov. Jan Brewer diverted $50 million of the state's $98 million into the general fund.
Thomas Cox, an attorney from Portland who helped expose the robo-signing scandal that ultimately led to the settlement, said it may not be a violation of the deal but it certainly violated the spirit.
"Consumers didn't have any real seat at the table when attorneys general negotiated that deal," Cox said. "The cash portion was to be used for housing-related programs, but they didn't make it mandatory. In the current political climate, states are desperate for cash. But, I'm not sure it's a smart use of that money."
Chet Randall, who runs the foreclosure prevention program at Pine Tree Legal, said he was grateful to get any money but disappointed that consumers didn't get more.
"Maine wasn't as bad as some other states, I guess," he said.
In addition to the direct payments to each state, the $25 billion foreclosure settlement set aside money for other assistance programs designed to directly help homeowners. That money is controlled by the five banks -- Bank of America, Citibank, Wells Fargo, JP Morgan Chase and Ally/GMAC -- and has been distributed more as credit than cash. For instance, a homeowner at risk of foreclosure could renegotiate a mortgage with a bank. Any savings would be credited toward that pool of money.
The money controlled by banks is harder to track because it's indirect. Maine borrowers whose mortgages were owned by Bank of America and JP Morgan Chase have benefited the most in the form of modified loans or assistance with short sales. Mortgage lenders have three years to fulfill the requirements associated with that money pool, so those programs are ongoing.
But Randall said there is not a lot of transparency in those programs. People don't always know what they're eligible for.
The Maine-based programs that were actually funded as part of the cash settlement are ongoing, too.
Randall said Pine Tree Legal's share has gone to hiring another attorney and another paralegal to assist Mainers hoping to stave off foreclosure or get out from under a bad loan.
Will Lund, with Maine's Bureau of Consumer Credit Protection, said the budget for the foreclosure diversion program was almost dried up before the $1 million was allocated. That money will fund the program for another year or two. The hope is that the foreclosure crisis will have subsided by then.
The program is typically funded through a portion of real estate transfer taxes but a recent change in that formula has resulted in less money.
Lund said his program acts as the front line for homeowners in need of assistance. The bureau staffs a hotline, provide referrals to certified housing counselors and distributes notices and packets of information to borrowers at risk of default.
The program is no less important now, he said, even though most assume the crisis is over.
"We sent out more pre-foreclosures notices in November than any other month we've been doing this," Lund said. "The sustained high volume has lasted longer than anyone thought."
If the crisis persists, funding could dry up without another settlement to replenish assistance programs.
Cox said the funding for the consumer credit protection bureau and Pine Tree Legal was money well spent, but he's not sure how far it will stretch. The state missed an opportunity to use its settlement money to help homeowners, he said.
"It's rare that we don't come away with a resolution if we go to mediation, even if that means a graceful exit from a bad loan," he said. "If we had more resources, we'd have more resolutions."
Staff Writer Eric Russell can be contacted at 791-6344 or at: