Home>Articles>Gov. and Legislature Ignoring Appellate Court’s Order to Return ‘Unlawfully Diverted’ Subprime Crisis Funds

Gov. Gavin Newsom. (Kevin Sanders for California Globe)
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Gov. and Legislature Ignoring Appellate Court’s Order to Return ‘Unlawfully Diverted’ Subprime Crisis Funds

The settlement funds would have directly helped low-income families and people of color

By Katy Grimes, October 10, 2019 7:40 am

In 2018, Gov. Jerry Brown was ordered by the state’s 3rd Appellate District Court to repay more than $331 million in funds the state illegally diverted from a national fund intended to help homeowners struggling with foreclosures from the housing crisis. Instead of complying with the court order, Democrats pushed through a bill to legitimize the theft of funds.

Governor Gavin Newsom just signed Senate Bill 113, which will allow his administration to take a year or more to set up a nonprofit trust that would invest the funds, in still-unknown ways, rather than distributing the money to wronged homeowners. The administration said it would only spend investment profits, not the actual settlement funds.

The settlement funds would have directly helped many California homeowners, including low-income families and people of color.

Ironically, Democrats stood side-by-side with “Occupy” groups, proclaiming their outrage over the actions of “Big Banks” and “Wall Street” that hurt homeowners in California.

Stealing money intended to help people damaged by what Democrats called “predatory lenders” and “Wall Street” in order to bail out the gross abuses by the Governor’s and Legislature’s wasteful spending is probably among the lowest actions.

Notably, the Legislature just passed AB 539, a bill to bar “predatory lenders,” like payday small loan companies, from imposing excessively high-interest rates on people who borrow $2,500 up to $10,000, while also passing legislation to allow cities to open public government banks. Perhaps this settlement is seed money for the government banks.

A Legislative Bill Analysis reports:

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.

Legal NewsLine explains:

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.

Apparently, those Senate Democrats who voted to pass the bill were apparently okay with taking money that was specifically intended for homeowners damaged in the housing crisis.

“Since 2015, Senate Republicans have been fighting to help struggling homeowners who suffered during the mortgage meltdown. Families should have had their victory at long last, but instead, the Newsom administration has concocted a scheme to study the issue for another year and then channel the funds through a vague and possibly risky investment trust,” said Senate Republican Leader Shannon Grove.

“This decision will create a needless delay of potentially two more years before homeowners might see a dollar in assistance from unknown investment profits.  Also, if the investments lose money, there is no guarantee that the trust would have any profits to spend on homeowner assistance.”

“Families in California already face affordability issues in our state, and now this overdue assistance is delayed once again. This legislation should have simply directed the state to immediately spend the $331 million for its intended purpose of assisting homeowners, not create more delays and disappointments,” Grove said.

Katy Grimes

Katy Grimes, the Editor of the California Globe, is a long-time Investigative Journalist covering the California State Capitol, and the co-author of California's War Against Donald Trump: Who Wins? Who Loses?
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9 thoughts on “Gov. and Legislature Ignoring Appellate Court’s Order to Return ‘Unlawfully Diverted’ Subprime Crisis Funds

  1. Shameful and disgraceful behavior this is total BS! Newsom still trying to keep the $331 million even after the courts ordered him and the state to return it to the homeowners. STEALING IS WHAT IT IS!!!!!!!!!!!!!!

  2. We as Californians have to wake up to the fact that a one party system (Which CA Has) is destroying everything that was once great about this state. Next stop is a dictatorial State and that is where we are heading with people like our present thief I mean govenor.

  3. Arrest Newsom He is a thief throw him in the jail and throw away the key and Kamala Harris with him and the rest of the liberal Democrats in California to

  4. “Perhaps this settlement is seed money for the government banks.”
    See where this is going?
    Using private individual and other depositor funds to finance corporations’ Green New Deal projects (and their profits) at subsidized public bank borrowing rates, while transferring the risk of exposure of such projects to the public bank (taxpayer)and aforementioned depositors.

    Similar use of funds for public-private affordable housing projects. Public banking facilitating the privatization of public services. This is not the point of public banking!

    1. Alexandria Ocasio-Cortez
    @AOC

    ‘Wow. Congratulations to the California grassroots for this enormous victory. Kudos to @GavinNewsom for signing this.

    Public banking is next level! #PeopleOverProfit’

    2. Green New Deal Penguin 🌅
    @GreenNewPenguin – Oct 3
    Replying to
    @AOC and @GavinNewsom
    ‘Nice work! Public banks will help fund #GreenNewDeal projects in California.

    “The loans could be used for businesses, affordable housing, infrastructure, and municipal projects, among other things.” ‘

  5. Everyone disgusted with our governor needs to join the Facebook page “2 Million Californians to Recall Gavin Newsom” and sign the petition to kick the bum out. We need 1.5 million signatures by February.

  6. Go here to find locations where you can sign Recall Newsom petitions. Click “Petition Events Map.”
    http://recallgavinnow.com/
    This is the RANAF.org recall effort, the one that first qualified. Seems well-organized. The locations are listed in the box on the left side of the screen. You can also volunteer to be a permanent or pop-up petition-signing location.

  7. This is an outrage. Criminal banksters stealing our homes by design. Create false arrearage and add 7 years of taxes I paid already on my house. Do you think California even keeps a record of my propert taxes paid? No! They are in collusion with the criminal banksters not even giving me proof I paid everything. No legal support either for fraudulent foreclosures. Chase adds on $1600 a month, yes a month, for property insurance, also paid.
    They owed me $8000 when they put me into foreclosure. That’s the banking game in California

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