Appellate Court Ordered CA Governor to Return Unlawfully Diverted Subprime Crisis Funds

SACRAMENTO REGION, CA (MPG)  |  Commentary by Katy Grimes, Investigative Journalist

SACRAMENTO REGION, CA (MPG) - Gov. Jerry Brown was recently 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 are pushing through a bill to legitimize the theft of funds.

The Assembly already passed Assembly Bill 1829, which makes the statutory changes related to the National Mortgage justifying this theft.  AB 1829 was passed on a party line in the Senate Committee on Budget and Fiscal Review, 12 – 5, with all Republicans on the committee voting no.

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 state’s 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. Senate Democrats just turned their back on all the damaged California homeowners who lost so much during the housing crisis.

California continues to suffer from a housing crisis because of a lack of affordability. AB 1829 is not simply a clarification of legislative intent; it is a shameless theft by this administration of money intended for the California homeowners whom the funds were intended to help.

Specifically, 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” which hurt homeowners in California. The Legislature is also thumbing its nose at the judicial system. Over the years there have been many sneaky, back-room and duplicitous actions perpetrated on the people of California by the governor and Democrat-controlled Legislature. But 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 and spending is probably among the lowest actions.

Now, when the illegal diversion of funds have been called out by the courts and this Legislature has a chance to make things right, Democrats not only can’t acknowledge the wrongness of their diversion, they’re actually seeking to legitimize it.

In a unanimous opinion authored by Judge Andrea Lynn Hoch, the appeals court largely affirmed but remanded the case to a trial court with an order to issue a writ of mandate “directing the immediate re-transfer from the general fund to the NMS Deposit Fund the sum of $331,044,084,” Legal NewsLine said.

After this “reclassification” of intent, the State will probably appeal to the California Supreme Court.