Industry NewsMortgage

States using robo-signing funds to plug budget gaps

Consumer advocates say money could have helped homeowners

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Despite protests from dozens of public interest groups and the state's attorney general, California is set to use $411 million in funds coming to the state from the robo-signing settlement with mortgage servicers to help plug the state's massive budget gap. Under the $25 billion agreement with the nation's five largest mortgage servicers over so-called "robo-signing" practices, states were allocated a total of $2.5 billion in cash penalties, of which at least $974 million (or nearly 40 percent) has thus far been diverted to balance state budget deficits or pay for programs unrelated to the foreclosure crisis, ProPublica reported. Most of the settlement funds, about $20 billion, will come in the form of credits for homeowner relief, including short sales, loan modifications, principal reductions, and for helping underwater borrowers refinance. Under the terms of the settlement, states were encouraged to use the $2.5 billion in penalties on programs related to the foreclosu...