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When the federal government reached a large settlement with JPMorgan Chase over the securitization of shaky mortgages, advocates for distressed homeowners were pleased that billions of dollars were earmarked for states to resolve claims related to the financial crisis. That money seemed destined to help people who had been adversely affected by the bank’s misconduct. Ad Policy

But in New York, a power play by Governor Andrew Cuomo is endangering some of that relief. The New York Times reported this week that Cuomo wants the money sent to New York from the settlement—$613.8 million—to be diverted to the state’s general fund. Cuomo will announce his budget on Tuesday, and needs revenue to pay for a number of initiatives, from his universal pre-kindergarten program to future tax cuts for businesses.

This has set off a furious battle between Cuomo and New York State Attorney General Eric Schneiderman that has already apparently gotten personal—and how it is resolved will have huge significance for distressed homeowners in the state. It could also have some non-trivial implications for any potential presidential run by Cuomo.

Schneiderman, who co-chairs the federal Residential Mortgage Backed Securities that brokered the settlement, believes he should control the monies. He points to the language of the settlement and a memo from New York Solicitor General Barbara Underwood, which states that “the settlement funds at issue here are not money received for or on behalf of the state. Instead, they are held by the Attorney General for the benefit of others, namely the people who were or will be harmed, directly and indirectly, by the fraud, or by similar frauds.”

Having the attorney general control the funds would be consistent with many past settlements in the state—including when Cuomo himself held that office.

Until now, Schneiderman has not said how he planned to use the funds. But a New York source has provided The Nation with a memo circulating among state officials that outlines what Schneiderman wants to do with the money. Each initiative directs the money to distressed homeowners and troubled parts of the housing market.

The big-ticket item is a New York State Mortgage Relief Incentive Fund. The idea is to persuade commercial holders of underwater or non-performing loans to modify entire pools of those loans, instead of dealing with individual loans one at a time. The fund would provide subsidies for principal reductions, financing for refinancing and loan guarantees in exchange for modifications.

The large dollar amount harnessed by the settlement will allow for subsidies big enough to hopefully persuade banks and other loan holders to take this action en masse, instead of haggling with individual consumers.

Additionally, Schneiderman plans to use the settlement funds to expand a homeowner loan program, currently operating in a pilot phase in New York City. The program will offer loans to homeowners to pay down small debts and obtain loan modifications for troubled mortgages.

Schneiderman also wants to direct the remaining funds to bolster two initiatives that came from the 2012 National Mortgage Settlement—a homeowner protection program that offers counseling to troubled homeowners battling their banks, and a land bank program designed to address the problem of abandoned properties throughout the state.

Housing advocates in the state strongly believe Schneiderman should retain control of the funds. “The money went to the attorney general in New York for specific purposes, in fact was specifically earmarked in the settlement for those purposes, and certainly that’s the spirit of the settlement,” Josh Zinner, co-director of the New Economy Project in New York City, told The Nation. “This is really important because it was the subprime lending practices of Chase and others that led to the financial crash, that led to such devastation in low-income communities and communities of color. It’s really critical that those funds from the settlement are used to help those communities.”

“The notion that these funds would be taken away by the governor, particularly when he’s talking about tax cuts for the wealthy, is problematic in our view,” Zinner added.

Cuomo’s power play here isn’t anything new—when the National Mortgage Settlement was announced in early 2012, more than a dozen states quickly moved to divert the settlement funds to close state budget gaps.

Cuomo’s challenge—beyond the apparent legal hurdles to reappropriating the money—will be explaining why he wants to divert help away from troubled homeowners in the state. With a potential presidential run coming in 2016, this could become a potent issue among skeptical progressives, particularly since the national housing market is likely to remain problematic.