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States to receive at least $2B in foreclosure settlement

Across the country, 49 states are contemplating what they will do with their share of the $25 billion dollar national foreclosure settlement. Some states are already getting flack for planning on using the money for unrelated expenses, such as budget deficits. States have the freedom to use the money as they see fit, but residents of Washington, D.C., and elsewhere will likely prefer the money go toward helping people recover from unwarranted foreclosure actions.

Borrowers will receive 90 percent of the settlement, while states will receive at least $2.66 billion. Though the money can be used for whatever purpose each state sees fit, it is officially to be used to help foreclosure fighting efforts.

The settlement comes after an investigation into abuses stemming from the housing market crash. Banks in the settlement are Bank of America Corp., Wells Fargo & Co., Ally Financial Inc., JPMorgan Chase & Co. and Citigroup Inc. The settlement requires the banks to pay $20 billion to homeowners in the form of mortgage relief and $5 billion to states.

In Wisconsin, the governor and attorney general said that $25.6 million of the $140 million the state received in the settlement would be put toward the state's budget deficit. Protestors argued that the money was intended to help families and local communities affected by the foreclosure crisis. Those affected did not have any part in creating the state's deficit, so the money meant for them should not be misappropriated by the state.

Another Midwestern state has similar plans to use $40 million of its $155 million to soften the blow of cuts to higher education.

Other states will use the bulk of their money for programs to help those facing foreclosure. Money is slated to go to organizations that can provide assistance and legal services for those who can't afford lawyers for their foreclosure proceedings.

Source: Bloomberg, "Foreclosure Deal May Help States Prop Up Budgets," Mark Niquette and Tim Jones, Feb. 13, 2012

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