Check your favorite news feed about stories on foreclosures in the US and you will most likely see the vast majority focusing on bank practices and illegal foreclosure proceedings. That’s likely to be fueled even more by the HUD report released yesterday indicating alleged widespread fraudulent activity among many of the nation’s largest mortgage lenders. That report is suspect to begin with, but even so, we still are not hearing a whole lot about the government’s culpability in the ongoing crisis.

As a case in point, CBS Money Watch is one of only a small handful of news outlets reporting the fact that state governments set to receive billions of dollars from the recent foreclosure settlement reached between five biggest banks and 49 attorneys general will not necessarily use that money to help distressed homeowners. In fact, a number of those states have already announced plans to divert the settlement money in order to close budget gaps. Why aren’t those concerned about distressed homeowners outraged over this?

The reality of the foreclosure settlement is a lot like what we saw with the tobacco settlement of 1998, when a windfall of money was distributed among the states ostensibly to help fund anti-smoking campaigns and treat victims of smoking-related diseases. Yet most of the states barely used any of their allotments towards intended purposes. Most simply dumped it into general funds and used it for other things.

By respres (http://www.flickr.com/photos/respres/2539334956/) CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0), via Wikimedia Commons

No matter how you cut it, the whole housing crisis has been largely political from the start. It began back during the Carter administration when the American dream was redefined as owning a home. It was fueled throughout the years of both Bush presidencies as well as the Clinton administration, until the whole thing collapsed in 2008. When watchdogs warned Congress during George W. Bush’s second term they were largely rebuffed by the likes of Barney Frank and Chris Dodd.

In 2012, when state governments are claiming to be concerned about distressed homeowners, politics still rules the day. As reported by CBS, no fewer than five states have already admitted publicly they will divert all or some of their funding for other purposes. It’s expected that more will follow suit whether public or not.

Leading the way is the state of Missouri which plans to use almost its entire $41 billion allotment to shore up their budget. Gov. Jay Nixon told the Associated Press he thinks it’s fair to divert the foreclosure money to make up for cuts he was forced to make in the state budget. How convenient that the money has come in an election year.

At the end of the day it appears that government is still playing a big role in the ongoing housing mess. If we expect the banks to pony up and pay for their actions should we not expect at least as much from state and federal governments? If we don’t the foreclosure mess will continue for many more years to come.