Gov. Gavin Newsom proposes California foreclosure help using money diverted years ago

Gov. Gavin Newsom
Gov. Gavin Newsom announces new help for foreclosure victims during a news conference Wednesday in Los Angeles, alongside Assemblymen Miguel Santiago (D-Los Angeles), left, and Jesse Gabriel (D-Encino), right.
(Kent Nishimura / Los Angeles Times)

Gov. Gavin Newsom proposed Wednesday to spend California’s share of a national mortgage settlement on legal assistance for struggling homeowners and renters, funds that lawmakers illegally diverted in 2014 to help erase the state’s budget deficit.

The governor’s announcement of the effort at an event in Los Angeles came as a surprise to the community groups that sued the state, who said they had wanted to help craft plans for the money. And the leader of one group remained worried skeptical that the money would be used as promised.

Newsom unveiled the broad outlines of a plan to deposit $331 million, the amount originally set aside for statewide homeowner help, into a trust fund that would pay for legal services to help those Californians. The fund would also assist renters in need of legal advice. The governor said his plan will require approval by the Legislature before it adjourns for the year next month and is long overdue for those affected by the business practices of powerful mortgage lending companies.

“The idea that human beings could take advantage of other human beings at this level and go to bed at night and hug their kids is rather extraordinary in and of itself,” Newsom said at a news conference held at Public Counsel, a Los Angeles legal aid clinic. “Those that aspire to get into [the middle class] are being slammed, because we had been unable to produce enough housing, to prevent evictions and foreclosures and unscrupulous practices and to preserve the existing housing stock.”


In all, California received $410 million in the 2012 national settlement with the nation’s five largest mortgage servicers: Ally (formerly known as GMAC), Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo. The companies were charged with a number of federal law violations and ultimately agreed to pay more than $20 billion directly to homeowners affected by the mortgage crisis. Those companies then made a separate payment to state governments totaling $2.5 billion, with California receiving $410 million of that.

But most of that money, $331 million, was used by then-Gov. Jerry Brown and legislators to repay housing bonds, some of which were sold a decade before the 2012 national settlement with mortgage lenders. It took five years and a series of court challenges for a coalition of groups to force the state to repay those funds.

In 2018, the Legislature tried to block a California appeals court ruling requiring the state to replenish the mortgage settlement funds. Lawmakers passed legislation to “abrogate,” or effectively revoke, the court decision. Last month, the California Supreme Court refused the state’s request to reconsider the ruling, leaving in place the appeals court order to repay the money.

Martha Castro, a client of the legal aid organization that hosted Newsom, told those in attendance at Wednesday’s event that she was the victim of a predatory lending scheme in which she almost lost her home. She said her monthly mortgage payments more than doubled, and without the legal help, she would’ve lost her home.

“I though that I would end up homeless and have nowhere else to turn for help,” Castro said through a translator.

Public Counsel lawyers were able to remove several liens from her home and help her regain her financial footing. Newsom pointed to Castro’s story and said the proposed fund could help protect renters and homeowners. He added that there hadn’t been enough regulatory oversight of lenders and that the state needs to do more.

“We can’t rely on city attorneys, we can’t rely on local government or the federal government to do the job, and respectfully, the state is not doing enough,” the governor said.

While plaintiffs in the case applauded new help for homeowners, they were disappointed that Newsom did not ask for their input in crafting a way to spend the money they fought to have the state pay back.

“We fought so hard for five years and now we have to fight again for where the money will go,” said Faith Bautista, president and chief executive of the National Asian American Coalition. “This has to be impactful.”

An outline provided by the Newsom administration says the new trust fund will pay not only for legal assistance, but renter and homeowner education efforts and programs to stop evictions and foreclosures. Those ideas mirror some of the language in the California provisions of the original consent decree agreed to by lenders and attorneys general in 49 states.

But the decree also proposed grants be made directly to Californians affected by the controversial lending practices. Bautista, whose group is headquartered in the San Francisco Bay Area and works with homeowners across the state, said there’s much more the money can do to provide relief to those caught in the recession-era mortgage crisis. She said collection agencies are demanding payments from some homeowners with second mortgages who could have used legal help years ago to negotiate down the debt if state lawmakers hadn’t diverted the money.

Rep. Katie Porter (D-Irvine), who worked on the mortgage settlement as an attorney under then-California Atty. Gen. Kamala Harris, said Newsom’s proposal goes a long way toward meeting the agreement’s goals.

“The problem is nobody holds those cheaters and scammers — big companies and small companies alike — nobody holds their feet to the fire,” she said. “Nobody holds them to account, and that’s what this will do.”

Newsom said Wednesday that there’s room for more discussion as he submits his framework to the Legislature. Bautista, whose coalition of community groups plans to lobby lawmakers when they return from summer recess, said homeowners who lost everything need assurances that state officials are serious about providing relief.

“For this to be impactful, there needs to be accountability of every penny,” she said.