Dividing the Mortgage Settlement Dollars

Details are still forthcoming about the settlement between the federal government and attorneys general and the five largest servicing banks but one interesting twist that is already emerging is how the dollars are being divvied up and distributed. The total number touted, $25 billion, includes both dollars paid in cold cash to the states,  dollars paid in cold cash to wronged consumers, and "credit" for reducing principal or refinancing. The estimates I've seen suggest only $5 billion is in either of the cash categories, with the relief to any particular consumer likely to be $1,500 to $2,000. That suggests that $20 billion could be available for rewriting loan terms to help consumers.

But, the effects of the settlement are likely going to vary by state. Iowa's Attorney General, Tom Miller, who led the 50-state investigation, has described a division of Iowa's money  that would look quite different from the above-described distribution. He says Iowa's slice of the total $25 billion is likely to be $40 million. Make sense to me; Iowa has a small  population. But of that estimated $40 million, Iowa will get $15.3 million in cold hard cash.  That is 38% of Iowa's relief coming in hard dollars to the state, whereas $5 billion of the $25 billion estimated for the nation suggests a 20% cash payout. Iowa is taking almost twice the percentage of its haul in cash as in "credit" for principal write-downs/refinancings. Then there is the issue of what the states are going to do with their cash. Attorney General Tom Miller suggests the money should go to the groups directly aiding homeowners in trouble. But other states have other ideas. Missiouri's governor has proposed using at least a chunk of its money to support higher education. Read about it here, which also contains a list of the cash payment going to each state. And Ohio seems to be planning to use at least some of its cash to demolish blighted property. These variations in how much cash states get and what they'll do with it are just one reason that consumers may have to struggle to make sense of this settlement and benefit from it.