States Put Mortgage Settlement Money to Dubious Purposes

They extorted it, they can do with it what they want

Under the terms of the settlement, which was announced last February, the banks will pay more than $25 billion, with $2.5 billion going directly to states for housing counseling and foreclosure prevention programs.

The mortgage settlement is much smaller than the tobacco settlement, but one similarity between them is raising alarms around the country: Just as states found novel – and in some cases dubious – ways to spend their tobacco settlement funds, states have also siphoned mortgage settlement funds for purposes seemingly outside the realm of housing.

Some say the stakes are even higher for the mortgage funds. The foreclosure crisis is still dragging down the economy, and advocates say states are compounding the damage by failing to use the settlement money to mitigate it.