Gov. Jerry Brown

California Gov. Jerry Brown
diverted more than $350 million intended to fund housing counseling and
foreclosure relief programs to plug budget holes in 2012. Three
community groups are suing to have the funds restored.
(Gary Friedman, Los Angeles Times / February 13, 2014)

Three community groups sued Gov. Jerry Brown
on Friday, demanding he restore more than $350 million in mortgage
settlement funds that were used to plug state budget holes two years

The money — from
California's slice of the $25 billion national mortgage settlement with
banks in 2012 — was supposed to fund housing counseling and foreclosure
relief programs. But with the state facing a $16-billion budget deficit
that spring, Brown diverted it to the state's general fund and to pay
down interest on housing bonds.

These days, though, state coffers are fat, with California projecting
a $5-billion surplus this fiscal year. And so the groups, which work on
housing counseling, want Brown to put the money back where it was

"Our goal is a very simple
goal," said Robert Gnaizda, general counsel for the National Asian
American Coalition, which filed the suit along with COR Community
Development Corporation in Irvine and the National Hispanic Christian
Leadership Conference. "We want an early settlement that will help 2
million California homeowners who are still in distress."

Gnaizda said the suit was a last resort after several written and
verbal requests to the governor's office for a meeting on the topic drew
no response.

Brown's office had little to say Friday as well, issuing a statement
from H.D. Palmer, deputy director for external affairs, defending the
governor's decision.

"While we haven't yet seen the complaint, we're confident that our budget actions are legally sound," he said.

A spokesman declined to discuss the suit further.

Stuck in the middle is California Atty. Gen. Kamala Harris,
who played a lead role in the national settlement and criticized Brown
in 2012 for diverting the funds. But as the state's chief lawyer, Harris
must now defend Brown in the lawsuit. A spokesman for Harris declined

California is hardly the only state that used mortgage settlement
money for other purposes. A 2012 study by Enterprise Community Partners,
a nonprofit affordable housing group, found that less than half of the
$2.5 billion allocated to states in the deal had been used on housing.
And there have been disputes elsewhere, including New York, where Gov. Andrew Cuomo
and state Atty. Gen. Eric Schneiderman sparred for several months over
how to divvy up a settlement with JP Morgan Chase before reaching a deal
in January.

Gnaizda and Neil Barofsky, the former Treasury Department
inspector general who is representing the plaintiffs in the suit, said
they hope this case could provide a template for housing advocates in
other states who are seeking more of the settlement money.

"There are perhaps 15 states where this could be done," Gnaizda said.
"Each case is a little different, but we suspect we'll be hearing from
some of them in the future."

In California, foreclosure rates remain high, but lower than when the settlement was reached in February 2012. More
funding for counseling, credit repair and financial literacy could have
gone a long way toward helping borrowers recover, said Paul Leonard,
California director for the Center for Responsible Lending. The center
is not involved in the lawsuit but has criticized Brown's use of the

"That was a big chunk of money," Leonard said.

The loss of funds has had a direct effect on housing counseling
agencies and the people they work with, said Kevin Stein, associate
director of the California Reinvestment Coalition.

"There are fewer counselors, fewer agencies. That means there are
fewer people served," he said. "It has resulted in people losing their

The loss — coupled with declining funding to develop new affordable
housing — is making it harder for many Californians to find a decent
place to live. Any future mortgage settlements, he said, need to take
the whole picture into account.

"There should be significant resources for housing counseling, for
affordable housing and for principal-reduction modifications," Stein
said. "And we need to ensure that all these are available in the
hardest-hit communities in the state."

Twitter: @bytimlogan