DCRAC Asks AG Lynch to Investigate the Misuse of the Mortgage Settlement Funds in DE

Very proud of Rashmi Rangan and the Delaware Community Reinvestment Action Council, Inc. for stepping up and asking for an official investigation into whether or not the settlement funds Delaware received have been misued. You’ll remember that the GA grabbed those funds to fill their own budget deficit. The one they created by not being able to ask for additional revenues. And you’ll also recall that California was sued over this same money grab by its legislature and was told by the courts to pay it back. Ms. Rangan sent her request directly to the US Attorney General Loretta Lynch:

July 27, 2015

Attorney General Lynch
United States Department of Justice
950 Pennsylvania Ave. NW
Washington, DC 20530

Re: August 2014 Settlement Agreement with Bank of America

Dear Attorney General Lynch:

In August 2014 the Department of Justice announced a “historic” settlement involving $16.65 billion in relief for financial fraud leading up to and during the financial crisis. Under Paragraph 9 of the Settlement $45,000,000 was committed to the remediation of harms to the State of Delaware allegedly resulting from unlawful conduct by Bank of America. Paragraph 9 explicitly states, “The payment to the State of Delaware shall be used, to the maximum extent possible, for purposes of providing restitution and remediating harms to the State and its communities allegedly resulting from the unlawful conduct of [Bank of America], including efforts to address the mortgage and foreclosure crisis, financial fraud and deception, and housing related issues.” Moreover, in a contemporaneous press release issued by the Delaware Attorney General, the funds at issue here “must be used to remediate the harm Delaware communities suffered as a result of the housing crisis, . . . .”

The Delaware Community Reinvestment Action Council, Inc. (DCRAC) is a non-profit organization whose mission is to ensure equitable treatment and equal access to credit and capital for Delawareans. Since its founding in 1987, it has commented on the abusive and discriminatory mortgage lending practices that have visited misery upon low- and moderate income and minority communities.

We have learned that the General Assembly of the State of Delaware has retained $30,000,000 in settlement funds to close the expected budget gap in the next fiscal year in a manner that does not comply, in our view, with the terms of the Settlement Agreement. There exists a real danger that this sizeable chunk of remedial relief will not be used by the State of Delaware for the purpose of providing restitution or remediating harms to Delaware and its victim communities.

It has become all too clear that the Settlement Agreement, however vigilant to the need for a monitor to oversee the conduct of Bank of America, did not foresee the need for a monitor to oversee the distribution of $16.65 billion by the state government signatories. Regrettably, it falls to DCRAC to allege non-compliance by the State of Delaware, a designated plaintiff in the Settlement Agreement, with the terms of the Settlement Agreement. Such non-compliance with the monetary distribution requirements of the Settlement Agreement, as well as the contemporaneous publicly announced intentions of the United States and Delaware with regard to the use of this “historic” $16.65 billion in monetary compensation, renders illusory the promise of justice for a much abused and exploited community in the State of Delaware.

DCRAC requests that the Department of Justice conduct an inquiry into the allocation of $45,000,000 under the Settlement Agreement by the State of Delaware to determine whether its disbursement was in accord with the meaning and intent of the Agreement. If necessary, we would urge the Department of Justice to present the matter to the United States District Court, District of New Jersey, to ensure compliance by the State of Delaware with the Settlement Agreement and recoup any funds that have been misappropriated.

Thank you for your timely attention to the matters set out herein.

Sincerely,
Rashmi Rangan,
Executive Director

And here is the explanation of their action:

DCRAC asks Attorney General Lynch to investigate the distribution of $16.65 billion in settlement funds obtained from Bank of America

Wilmington, DE— The State of Delaware has misused settlement funds—explicitly directed in 2014 to provide “restitution and remediating harms to the State and its communities allegedly resulting from the unlawful conduct of [Bank of America]”—to instead fill holes in the state’s FY15 budget, according to the Delaware Community Reinvestment Action Council, Inc. The general assembly is sitting on $30 million of these funds with an eye to close the budget gap next fiscal year.

On July 27, 2015, DCRAC sent a letter to U.S. Attorney General Lynch asking for oversight of the distribution of settlement funds (attached). “Signatory to the settlement agreement states across the United States are using these funds to close the budget gaps when they should be investing in homeownership and foreclosure prevention to preserve property tax revenues for future fiscal years,” says Rashmi Rangan, executive director of DCRAC.

Nationwide, one in every 421 residential housing units were in foreclosure in the first quarter of 2015. In Delaware, the figure was 1 in 300. From January-March 2015, foreclosure actions were filed against 669 Delawareans. Nearly 3,000 more Delawareans are likely to be foreclosed upon this year. Delaware continues to make the top 10 states for foreclosure filings.

“The undercurrent implicit in the State redirecting settlement funds paid in reference to statutory violations to satisfy unrelated budget needs should make future litigants leery of monetary negotiations with the state when they have no assurance that compensation and damages will not be redirected by the State for other purposes.” Said James Angus, a DCRAC pro bono volunteer attorney. “It carries the patina of tribute to the State rather than compensation for violations of law.”

The settlement language is very clear and unambiguous. It states, “The payment to the State of Delaware shall be used, to the maximum extent possible, for purposes of providing restitution and remediating harms to the State and its communities allegedly resulting from the unlawful conduct of [Bank of America], including efforts to address the mortgage and foreclosure crisis, financial fraud and deception, and housing related issues.” The state was presented with numerous options for the appropriate use of these funds. The state chose to ignore all such recommendations. “When the state goes rogue who holds them accountable?” asks Rangan. It has become all too clear that the Settlement Agreement, never foresaw the need for a monitor to oversee the distribution of $16.65 billion by the state government signatories.

Beneath the figures are stories. Since 2008 DCRAC has worked with an elderly Delaware couple to modify their mortgage. The hardworking couple always did what was necessary to make ends meet. Countrywide and later, Bank of America rejected their hardship related modification request. Once business owners they found themselves saddled with a predatory loan and closed shop due to the broader financial crisis. “This is why these funds are needed to be distributed in line with their intended purpose,” says Rangan.

Another couple DCRAC worked with found themselves in foreclosure in 2013 because their balloon payment on a sub-prime loan came due. The neighborhood in which they lived was riddled with foreclosures and vacant/abandoned homes; it became a haven for crime. “These homeowners suffered a tremendous equity loss due to the downturn in their neighborhood after paying their mortgage for over ten years,” says Jaclyn Quinn, Deputy Director of DCRAC. Refinancing wasn’t an option because of the drop in property value. “They chose to leave their home due to the increased violence on their street rather than stay and fight with their lender. This is not a decision any Delawarean should have to make,” says Quinn.

The proper and effective use of funds as intended by the terms of the settlement has the potential to restore dignity to our fellow citizens and create diverse, sustainable growth in our communities. Any use of funds inconsistent with the settlement agreement will not be tolerated by Delawareans. The current spending and future plan for funds amounts to a blatant disregard of the settlement agreement and misuse by the State.

No idea if this will go very far. It would be great if a lawsuit came out of this too. It would also be great if the State’s housing non-profits would join her and also write to Ms. Lynch to support the request for an investigation. But congratulations and thank you to Ms. Rangan for doing this.