By Katy Grimes —— Bio and Archives August 22, 2018
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In 2012, the federal government and 49 states sued, and eventually settled with, the five largest mortgage servicers in the country related to their actions leading up to and during the 2008 financial crisis. The resulting National Mortgage Settlement (NMS) resulted in comprehensive new mortgage servicing standards, provided more than $20 billion in financial relief for homeowners damaged by the mortgage crisis, and provided about $2.5 billion directly to states for a variety of uses, including "to compensate the states for costs resulting from the alleged unlawful conduct of the [bank defendants]." California's share of this $2.5 billion was roughly $410 million. Under the terms of the settlement, each state's Attorney General would designate the uses of the funds. The California Attorney General's Office designated allowable uses of the received funds."California received approximately $410 million of the $2.5 billion paid to the states by the big five mortgage servicers--Ally (formerly GMAC), Bank of America, Citigroup, JPMorgan Chase and Wells Fargo--under a National Mortgage Settlement (NMS) with the federal government, the ruling states," Legal NewsLine reported. Under then-California Attorney General Kamala Harris, the National Mortgage Special Deposit Fund was established in 2012 to directly help homeowners who suffered and were impacted by the housing crisis. However, the money was "unlawfully diverted" to the general fund, affirming a lower court's ruling in a case taken against the state by the National Asian American Coalition, COR Community Development Corp. and the National Hispanic Christian Leadership Conference. Upon receiving the funds Governor Brown's administration raided $331 million dollars from it and spent it backfilling budget deficits in various agencies.
The money was to be placed in each states' NMS Deposit Fund and the attorneys general were charged with setting the parameters of how it could be spent, with the states ordered to comply. Then-Attorney General Kamala Harris drew up a set of instructions on how the money could be used. But the legislature then passed an act setting up the special deposit fund, which included a provision that allowed 90 percent of the money to be diverted to the general fund, regardless of Harris' instructions. A total of $331 million was sent to the state's main fund. Harris instructed that the money be spent, among other elements, on the administration and monitoring of the compliance elements of the agreement, supporting relief programs, ongoing investigations and enforcement, borrower relief, funds for legal aid and grants.In 2014 a coalition of minority counseling groups sued Gov. Jerry Brown and his Department of Finance, accusing them of illegally diverting the NMSDF relief funds. In June 2015 a Sacramento County Superior Court Judge ruled that the funds were indeed "unlawfully transferred and must be returned." And the 3rd Appellate District Court upheld the lower court's decision. However, the Legislature is ignoring the Appellate Court ruling.
Katy Grimes is an investigative journalist, Senior Correspondent with the Flash Report, ReaganBabe, and Senior Media Fellow with Energy and Environmental Institute. A longtime political analyst, she has written for The Sacramento Union, The Washington Examiner, Watchdog.org, The Pacific Research Institute’s CalWatchdog, The San Francisco Examiner, The Business Journal, E&E Legal, The Sacramento Bee, Legal Insurrection, Canada Free Press, and Laura Ingraham’s LifeZette, and can be heard regularly on many talk radio shows each week.