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Mortgage Settlement Companies Help States With Housing

03/13/2012 10:41 PM ET

A mortgage settlement could help states such as Colorado to repurpose a closed prison as transitional housing for veterans. If it sends money to remodel the former Fort Lyon Correctional Facility in Bent County, it will join other states eyeing projects that have no connection to the mortgage crisis.

The prison was shuttered to save some $8 million next year and help balance the state budget. Colorado officials were scrambling to find a use for the former prison when the sweeping $25 billion mortgage settlement was announced in February.

Most that settlement goes directly to homeowners affected by the mortgage crisis. But states were given $2.7 billion to spend as they wish.

Colorado is getting some $51 million to be spent by Attorney General John Suthers, who has legal authority to decide how settlements are spent. A spokesman for the attorney general said Suthers is considering many proposals for spending the money.

Suthers’ spokesman, Mike Saccone, said the Fort Lyon idea came from the governor’s office in public meetings about how to spend the mortgage settlement.

“We’ve had a healthy public process,” he said.

Saccone said the prison was among several ideas from the governor’s office. Suthers is also considering beefing up foreclosure counseling funds and consumer education efforts more closely related to the housing crisis.

Not everyone likes the prison idea, though. Democratic Rep. Claire Levy said that because the mortgage settlement is a one-time windfall, it shouldn’t be used on something the state would have to maintain in future years.

“I don’t think that’s a viable use of the money,” Levy said. She questioned Colorado’s practice of leaving most settlement money at the sole discretion of the state attorney general.

“When the attorney general is able to get funds through winning a lawsuit, he brought those cases on behalf of the state of Colorado. So the money should go to the people of Colorado, and the Legislature is the branch of government that appropriates those funds,” Levy said.

Wisconsin, Vermont and Maryland are among the states looking at using mortgage settlement money to plug budget holes. Pennsylvania Democrats are urging that state’s Republican-run attorney general’s office to use some of its $69 million payment to offset $2 billion in cuts to programs that benefit education, the elderly, disabled or poor.

In Colorado, backers of using some of the settlement money on the prison insist it would be a proper use of the money.

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