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Texas mortgage settlement millions misspent, critics say

The State of Texas got a financial windfall from the National Mortgage Settlement. What about struggling homeowners?
Beatriz Huml of El Paso said a bank foreclosed on her $200,000 home.


DALLAS – Texas homeowners who fell behind and lost their homes during the mortgage crisis were given hope three years ago.

It came in the form of a $25 billion national settlement with five lenders – Ally, Bank of America, Citi, JPMorgan Chase and Wells Fargo – all accused of wrongly forcing people out of their homes.

But how much relief did the State of Texas provide to its citizens?

As part of the agreement, the five lenders set aside money to make it easier for people to obtain loan modifications and other assistance (see below for how that money has been spent). But a huge chunk was paid directly to the state. Texas' share came to $124 million, with an additional $10 million going into an indigent defense fund.

So what happened to the $124 million? A WFAA investigation has revealed that over two legislative sessions, struggling homeowners victimized by robo-signing and other mortgage lender wrongdoing have received zero help from the state.

It was money that families like JoAnn and Sam Breitling of Sachse would love to have used to save their house of 30 years, which was sold back to the bank in 2014 on the steps of the Dallas civil courthouse.

Another homeowner, Beatriz Huml of El Paso, said a bank foreclosed on her $200,000 home over her failure to pay a $5,000 tax bill.

"I was willing to work with them, extend my loan... do whatever I needed to do," Huml said. "They said 'No.'"

Huml and the Breitlings are just two among thousands of Texans who lost — or are in the process of losing — their homes in what they claim are needless and improper foreclosures.

The 2012 National Mortgage Settlement was heralded as much-needed help for those struggling with their mortgages. Second only in size to the 1998 national tobacco settlement, the mortgage agreement was a windfall for many state governments.

Texas received the third highest payout, behind California ($410 million) and Florida ($334 million).

According to the settlement documents:

"To the extent practicable, such funds shall be used for purposes intended to avoid preventable foreclosures, to ameliorate the effects of the foreclosure crisis, to enhance law enforcement efforts to prevent and prosecute financial fraud, or unfair or deceptive acts or practices …"

But instead of using the settlement money to help homeowners, then-Texas Attorney General Greg Abbott directed that the money be deposited in the state's general fund.

Jim Daross, a lawyer with the Texas Attorney General's office who led the negotiations with the five lenders for the state of Texas, said the way state law reads, that was all that could be done with the money.

"Because the AG's office was directed by a state statute as to how to deposit the funds, it was therefore 'impracticable' for it to do anything other than pay the funds over to the general fund," said Daross, now in private practice. "In reality, I believe it would have been illegal to do anything other than that."

Cynthia Meyer, spokeswoman for the Texas AG's office, directed questions about how the money was spent to the State Capitol.

"That's something you will have to speak with state legislators about, as they are the ones who write the state budget," she said.

In the 2013 Texas legislative session, the Senate Finance Committee entertained testimony from housing groups pleading with lawmakers to use the settlement money as it was intended. Some lawmakers groused publicly that it was being misspent.

In the end, Sen. Tommy Williams (R-The Woodlands), who at the time chaired the Senate Finance Committee, let the matter die in a subcommittee.

Williams has since left state government and is now vice chancellor for federal and state relations for the Texas A&M University system. When contacted by News 8, he declined to talk about how his committee handled the mortgage settlement money.

In the 2015 legislative session, state Rep. Yvonne Davis (D-Dallas) sponsored a bill that would earmark the settlement funds for homeowners.

"It made no sense then for the state to take all the money and not provide programs, resources, things to make a difference in people's lives," Davis said. "That money was supposed to help them where they've been wronged."

Several in the legislature fought her efforts, including Rep. Matt Rinaldi (R-Dallas), who called the bill a "bad idea." Rinaldi told WFAA that if the money had been earmarked, it would have gone to the very people who created the mortgage crisis.

Despite opposition from Rinaldi and others, Davis' bill passed in the House in May. But House Bill 2473 died after being referred to the Senate Business and Commerce Committee.

Called on to explain what happened, Committee Chair Sen. Kevin Eltife (R-Tyler) told WFAA that "no Senate office contacted the committee staff requesting to sponsor the bill…"

"There's no way to describe the feeling that there was help out there and it was misappropriated," JoAnn Breitling said. "You count on the system to protect you."

On the Texas House floor, Davis warned lawmakers that their inaction would result in litigation, similar to what happened in California, which was sued for propping up its state budget with settlement money.

Davis' warnings have now come true.

Huml and her attorney, former El Paso district judge Richard Roman, filed a federal whistleblower lawsuit in May. It accuses the state of Texas of the "illegal diversion" of the state's share of the settlement funds.

"This money was earmarked – it's in settlement documents in a federal district court," Roman said. "That settlement designates where the money is supposed to go to. When it got to Texas, it went somewhere else."

The Breitling family would have liked to use Texas' share of the settlement money to hire an attorney to help them remain in their home. Huml said she would like to use the money to find a new one.

Both want the state to do the right thing.

"When the government says this is going to be for a specific purpose, that's what we are supposed to do," Huml said.

Davis said she will try again in 2017 to get the $124 million to the people who need it.

Settlement funds not put directly in state coffers have done some good, records show. Texans reportedly received $311 million that the five banks set aside for direct payments to mortgage holders for modifications and other relief, according to a summary by the Office of Mortgage Servicing Oversight.

According to the Texas AG's office, another $69 million was paid to Texas homeowners by Rust Consulting, which was hired by the National Mortgage Settlement's Monitoring Committee.

So, what about that California lawsuit over its bundle of settlement funds? In July, a judge ruled that the state improperly diverted the money and ordered $331 million returned to a special housing fund.

E-mail bshipp@wfaa.com

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