Hat tip to Kingside for sending this in, from thebaycitizen.org:

Gov. Jerry Brown’s plan to use more than $400 million from a national foreclosure settlement to help balance the state budget would put struggling homeowners at risk of criminal scams, California housing officials say.

“We are already hearing from three or four families a week who have been approached by scam artists,” said Javier Hernandez, a housing counselor at Neighborhood Housing Services of the East Bay, which is in the heart of Richmond’s hard-hit Iron Triangle.

Under the terms of the settlement – part of a national agreement to resolve allegations of wrongful foreclosures by Bank of America, Wells Fargo, JPMorgan Chase, Citibank and Ally Financial – troubled California borrowers are slated to receive about $17 billion in direct assistance over the next three years. That amount includes $12 billion in mortgage write-downs for borrowers who owe more on their homes than they are worth.

In addition to direct aid to homeowners, the state is slated to receive $410 million in direct payment from the banks. Attorney General Kamala Harris had slated that money for enforcement and assistance to local housing organizations, which would help borrowers navigate the often-complex procedures banks have set up to access the money.

Housing counselors said they had been counting on that pot of settlement money to confront the fraud.

“People are being told, ‘Oh, we can help you fill out the application to get you a principal reduction if you just give us a few thousand dollars,’ but there is no such thing,” said Josie Ramirez, executive director of HomeownershipSF, a coalition of organizations that provide housing counseling in San Francisco.

But when Brown announced his revision to the state budget earlier this month, he said he planned to redirect all of the state’s share toward reducing the deficit this year and next.

“The settlement money will really in effect replace some general fund money so we can use it for other things, but it will still be going for the purpose the lawsuit intended,” he told reporters.

The budget, Brown said, is “a pretzel palace of incredible complexity.”

A week later, Brown’s move was endorsed by the nonpartisan Legislative Analyst’s Office. With a $15.7 billion shortfall now projected for this year, the office urged lawmakers to ignore the possibility that shifting the money might be illegal.

“We believe the magnitude of the additional budget year savings justifies any legal risk associated with offsetting General Fund costs less directly related to the settlement,” its report said.

But not everyone in Sacramento has signed on to the change. In an interview, Sen. Mark Leno, D-San Francisco, chairman of the Senate Budget and Fiscal Review Committee, called Brown’s proposal “disturbing.”

Leno said he would be working with other members of the budget committee to find ways to restore the funding, but added that with such a large deficit, “our choices are few and difficult, but I’m going to be doing what I can to see if we can’t keep the money for its intended purpose.”

For housing counselors like Hernandez and Ramirez, the funding shift could be devastating. In 2011, Congress cut $88 million in federal funds dedicated to housing counselors. As a result, Berkeley and Vallejo’s only certified foreclosure counseling agencies closed, and others across the state were forced to cut services.

An April survey of 50 housing counseling agencies by the nonprofit California Reinvestment Coalition found 37 percent of agencies planned to cut back their services in the next year, even though 75 percent predicted increased demand.

At Neighborhood Housing Services of the East Bay in Richmond, one of the three counselors already has been let go.

“I’m pretty pissed about it,” the agency’s director, Lynette Gibson McElhaney, said in an interview.

“We didn’t go after the money to fix the structural deficit of the state; we did it to help homeowners,” she said.


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