States Using Hundreds Of Million Of Dollars Meant To Help Homeowners To Other Uses

May 16, 2012

WASHINGTON, DC – Hundreds of millions of dollars meant to provide a little relief to the nation’s struggling homeowners is being diverted to plug state budget gaps.

In a budget proposed this week, California joined more than a dozen states that want to help close gaping shortfalls using money paid by the nation’s biggest banks and earmarked for foreclosure prevention, investigations of financial fraud and blunting the ill effects of the housing crisis. California was awarded more than $400 million from the banks, and Gov. Jerry Brown has proposed using the bulk of that sum to pay the state’s debts.

The money was part of a national settlement valued at $25 billion and negotiated with five big banks over abuses in their mortgage and foreclosure processes.

The settlement, reached in February after a year of talks and intervention by the Obama administration, was the second-largest in history involving the states, trailing the tobacco industry settlement, and represented the first large-scale commitment by banks to provide direct aid to borrowers.

As part of the settlement, the banks agreed to pay the states $2.5 billion, money intended to help homeowners and mitigate the effects of the foreclosure surge. But critics complained that this was the only cash the banks were required to pay — the rest comes in the form of “credits” for reducing mortgage debt and other activities. Even that relatively small amount has proved too great a temptation for lawmakers.

Only 27 states have devoted all their funds from the banks to housing programs, according to a report by Enterprise Community Partners, a national affordable housing group. So far about 15 states have said they will use all or most of the money for other purposes.

In Texas, $125 million went straight to the general fund. Missouri will use its $40 million to soften cuts to higher education. Indiana is spending more than half its allotment to pay energy bills for low-income families, while Virginia will use most of its $67 million to help revenue-starved local governments.

Like California, some other states with outsize problems from the housing bust are spending the money for something other than homeowner relief. Georgia, where home prices are still falling, will use its $99 million to lure companies to the state.

“The governor has decided to use the discretionary money for economic development,” said a spokesman for Nathan Deal, Georgia’s governor, a Republican. “He believes that the best way to prevent foreclosures amongst honest homeowners who have experienced hard times is to create jobs here in our state.”

Andy Schneggenburger, the executive director of the Atlanta Housing Association of Neighborhood-Based Developers, said the decision showed “a real lack of comprehension of the depths of the foreclosure problem.”

The $2.5 billion was intended to be under the control of the state attorneys general, who negotiated the settlement with the five banks — Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally. But there is enough wiggle room in the agreement, as well as in separate terms agreed to by each state, to give legislatures and governors wide latitude. The money can, for example, be counted as a “civil penalty” won by the state, and some leaders have argued that states are entitled to the money because the housing crash decimated tax collections.

Shaun Donovan, the federal housing secretary, has been privately urging state officials to spend the money as intended. “Other uses fail to capitalize on the opportunities presented by the settlement to bring real, concerted relief to homeowners and the communities in which they live,” he said Tuesday.

Some attorneys general have complied quietly with requests to repurpose the money, while others have protested. Lisa Madigan, the Democratic attorney general of Illinois, said she would oppose any effort to divert the funds. Tom Horne, the Republican attorney general of Arizona, said he disagreed with the state’s move to take about half its $97 million, which officials initially said was needed for prisons.

But Mr. Horne said he would not oppose the shift because the governor and the Legislature had authority over budgetary matters. The Arizona Center for Law in the Public Interest has said it will sue to stop Mr. Horne from transferring the money.

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Mesa Arizona Police Officer Mark Escarcega And Wife Arrested, Charged With Mortgage Fraud

April 22, 2011

PHOENIX, ARIZONA – A Mesa police officer and his wife have been arrested for lying to their mortgage lender after a federal investigation.

Blanca and Mark Escarcega purchased a home four years ago in Santa Rita Ranch in Mesa. According to, they paid $344,000 for the 1,880-square-foot home. Today, estimates it’s only worth $175,000.

According to the Maricopa county attorney’s office, the trouble began when Blanca wrote a hardship letter to their lender, Bank of America, asking for a loan modification, claiming she and her husband had separated.

According to court documents, she wrote the letter between October 2009 and August 2010. Bank of America gave her a loan modification, with the stipulation she live there at least another year.

[This 4,000-square-foot home in Valencia Groves in Mesa was purchased by fraud suspects Mark and Blanca Escarcega.]
This 4,000-square-foot home in Valencia Groves in Mesa was purchased by fraud suspects Mark and Blanca Escarcega.

But the county attorney’s office said the couple was never separated. Instead, they rented out their Santa Rita home, and together purchased a 4,000-square-foot home in Valencia Groves in Mesa last August. According to county records, the couple paid $325,000 for their new home, using $10,395 as a down payment.

According to sources, Mark Escarcega came to work bragging about how he and his wife had rigged a deal with their lender to move up in house, but his colleagues recognized fraud and told the chief, who notified the FBI.

On Monday, both Blanca and Mark Escarcega were booked and charged with one count of residential mortgage fraud. If convicted, they could get up to three years behind bars. Both pleaded not guilty.

Michelle Christie is their current tenant, who knew nothing of her landlords’ legal troubles. “It’s kind of upsetting,” Christie said. “Hopefully the owners will contact me and let me know what’s going to happen to me, and my kids.”

Kelly Gorman is a real estate attorney in Glendale. He said even the slightest fib on a mortgage application is considered fraud.

“There are people now that will try to game the system, because they know there are others catching breaks on their loans. So they’ll try to restructure it,” Gorman said.

The Mesa police department has suspended Escarcega on administrative leave until it can conduct its own internal investigation.

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