The budget crises that have been wreaking havoc on state finances for years now may have just reached a new low: Many states are now taking money from homeowners to cover other budget shortfalls. In a recent settlement with the states, five of the country’s largest banks have agreed to pay a settlement of about $25 billion, which will be distributed among the states and earmarked for foreclosure prevention.But homeowners shouldn’t expect those earmarks to trickle down to them anytime soon: the New York Times reports that only 27 states are actually putting the funds toward housing programs as intended. The rest are diverting the money toward plugging other budget holes in higher education, prisons, and energy. This list of culprits includes familiar ones (California and Illinois, for example), but even relatively flush states like Arizona and North Dakota are beginning to do it as well.Naturally, states these days need all the money they can get, but taking money from homeowners at a time when a moribund housing market is prolonging the recession seems like a particularly short-sighted idea. Worse, it is a serious slight to homeowners: First they were ripped off by Wall Street; now they are being looted and pillaged by the states.One thing is clear in all this. Despite good intentions, the government simply is not capable of helping distressed homeowners. Fortunately there are a couple of things you can do to protect yourself from most if not all of the dangers: buy less of a house than you can comfortably afford, and vote against politicians who demagogue on the housing issue.
Desperate States Take Money from Distressed Homeowners
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