Almost 15 years ago, the 50 states began to receive payments of millions of dollars from the tobacco companies as compensation for the public costs associated with the use of that purposely addictive drug. The funds, which are to be distributed annually for 25 years, are broadly used to reduce smoking.
Last week, it was announced that the nations largest banks, accused of abusing foreclosure processes, will begin making about $25 billion available to the states during the next three years. The money is to be distributed to selected individuals whose homes were improperly foreclosed on or who owe more than the value of their residence, or who deserve to have the principal amount of their loan reduced.
The foreclosures will have had to have taken place between Jan. 1, 2008, and the end of December 2011.
Colorado will receive about $200 million. An administrator will be selected, and the attorney generals office and mortgage processors will be involved.
To some extent, it is a proper step to right a wrong. There have been too many stories of foreclosures that occurred without the proper paperwork and by a distant entity, and of homeowners who wanted to renegotiate the terms of their mortgage and were ignored while fees mounted. Refinancing can be a source for revenue for lenders, and a previous federal initiative attempted to provide an extra incentive, but even with good intentions it is not what lenders do best; for too long the emphasis had been on delivering more and more new mortgages. And, after the real estate fall, there was legitimate uncertainty about home values and the strength of the economy. That is a difficult environment for new or refinanced loans.
It does feel good to now have the large banks give up some of the profits that continued almost unabated.
But $200 million will not go very far in Colorado, nor will other amounts in other states. Amounts allocated could be only a few thousand dollars, and plenty of former homeowners and current homeowners who are not selected will believe that they have been wrongly excluded. This is a program with a brand-new playbook and a relatively short life, with possible missteps, and it could leave many people feeling left out.
But putting some homeowners back into their homes, and partially reducing the excessive mortgage burden on those with homes worth less than the borrowed amount, are needed steps to help move the state and national economies forward again. Mortgage holders will not be the consumers they need to be while the future of their largest equity purchase is uncertain.
Applying the 1998 tobacco company settlement funding has been a good deal more straightforward than what will occur with the bank proceeds. Smoking disproportionately marks those with low education and income levels, and the Legislature has applied the tobacco money to needs in those broad categories; only small amounts fund anti-smoking advertising.
We welcome the payments from the national banks and the attempt at partially correcting inequities that they signify, but benefits will be limited.