Last week a $26 billion mortgage relief settlement deal was reached with five of the nation’s largest banks. Although a good portion of the funds, approximately $17 billion, will be used to reduce the principal balance for eligible underwater homeowners another $2.5 billion may not even be used for anything related to mortgage relief.

 

According to a CNNMoney.com report, states that participated in the settlement will be receiving $2.5 billion. However, these states have leeway with how the funds are used and some of the money may end up padding state budgets instead of helping the beleaguered housing market. One such state is Wisconsin.

 

“Wisconsin, meanwhile, is putting $25.6 million into its general fund to plug a $143.2 million budget hole. The state legislature will decide how to use the money. The attorney general will hold onto the remaining $6 million, which it may use for housing-related programs.” Source: CNNMoney

 

Georgia is another state that may not use its settlement funds for mortgage relief programs. The state will be receiving a $104 million payout but the funds will be deposited into the state’s Treasury until the Georgia General Assembly determines how the funds will be used.

 

Karen Brown, director of the Home Defense Program at the Atlanta Legal Aid Society, discussed the state’s mortgage woes with WABE’s Denis O’Hayer during a Monday radio interview. During the conversation Brown commented on Georgia’s housing market, which ranked fourth in the nation for foreclosures in the third quarter of 2011.

 

During that same time period 14 percent of first mortgages in the state were either delinquent or in foreclosure. Obviously the state’s economy could see significant benefits if the $104 million was used for direct mortgage relief efforts, preventing tens of thousands of additional homes from entering into foreclosure.

 

Unfortunately the way the settlement was structured, the 49 states receiving funds (all states except for Oklahoma) will have quite a bit of discretion in how the funds are used. While budget gaps are a major concern for state legislators, providing mortgage relief could have a more direct and positive impact on a state’s economy than simply filling holes in a budget.