Government officials announced a record $25 billion settlement with the five biggest banks related to foreclosure abuses including "robo-signing" of documents.
The deal is the largest multi-state settlement since the Tobacco Settlement in 1998, the Department of Justice said. Among the money allocated will be $1.5 billion distributed nationwide to about 750,000 borrowers who lost their homes to foreclosure.
Attorney General Eric Holder said the deal by 49 state attorneys general, who worked late into the hours of last night, does not preclude states from pursuing their own suits against the banks. The state attorney general of Oklahoma did not sign the settlement.
Holder announced further terms of the deal would be on the website, NationalMortgageSettlement.com, and residents of the states involved should visit the sites of their respective attorneys general.
Department of Housing and Urban Development Secretary Shaun Donovan said the settlement holds banks accountable for abuses against homeowners which "continued long after people got the keys to their new home."
"No more lost paperwork, no more excuses, no more rhetoric," Donovan said.
Donovan said the investigation comprised at least 15,000 hours of reviewing thousands of files of Federal Housing Adminstration insured loans.
The total figure in the settlement could be as much as $45 billion if other large mortgage servicers sign on and all the banks participate fully, officials said.
The Department of Justice held a press conference this morning to announce an agreement. New York and California were among the last holdouts but they both joined the settlement. California will receive up to $18 billion including banks enacting a minimum of $12 billion in principal reductions for the state's homeowners as part of a separate agreement.
California's attorney general Kamala Harris said that $12 billion has been guaranteed for about 250,000 homeowners who are underwater on their loans and behind or almost behind in their payments, for an average of $48,000 each. Harris estimates $849 million will be dedicated to refinancing loans of 28,000 homeowners who are current on their payments but underwater on their loans, for an average of $30,321 each. Another $279 million will be designated to offer restitution to about 140,000 California homeowners who were foreclosed upon between 2008 and Dec. 31, 2011, for an average of about $1,993 each.
Another $3.5 billion is set aside to relieve 32,000 California homeowners of unpaid balances remaining when their homes are foreclosed, for an average of $109,375 each.
For the past year, President Obama has advocated for a mortgage relief plan with the five biggest mortgage servicers, Bank of America, JPMorgan Chase, Wells Fargo and Ally Financial, to settle an investigation of foreclosure abuses. Evidence of robo-signing foreclosure documents began to show in 2010 during a record national wave of foreclosed homes.
The Neighborhood Assistance Corporation of America said it is disappointed the Obama administration failed to address the government owned or insured mortgages and the settlement is significant for the 10 percent of mortgages that the state attorneys general can enforce.
"The remaining mortgages, most of them government (i.e. Fannie Mae, Freddie Mac, FHA and VA) are not impacted and will continue to devastate the mortgage industry," the group said in a statement in response to Thursday's announcement.
The deal would apply to loans that were not sold to mortgage guarantors Fannie Mae and Freddie Mac.
Several states had previously agreed to a $19 billion settlement that would be used for national mortgage relief. The deal was reported to designate $17 billion to pay for principal reductions and other relief for up to one million borrowers behind in payments but owe more than their houses are currently worth, the New York Times reported.
However, those settlements would change depending on the number of homeowners between Jan. 1, 2008, and Dec. 31, 2011 who accepted the offer. Homeowners who participate in the settlement would still have the right to sue the banks, according to Patrick Madigan, the Iowa assistant attorney general, the New York Times reported.
New York State's attorney general Eric Schneiderman and California's Harris had previously said the settlement terms were not adequate. Schneiderman reportedly hopes to investigate the root causes of the financial collapse and Harris wants stronger measures to benefit individual homeowners.
Homeowner advocates had also criticized the reported deal, saying it would provide little relief to the most troubled homeowners.
"What the country and the housing market needs is a bold and broad fix - not broad immunity for banks' criminal behavior," George Goehl, executive director of community organizing group National People's Action, said in a statement. "Any settlement that is just about robo-signing should only release claims on robo-signing and nothing more. It should fix the servicing system and it should provide real relief to struggling underwater homeowners and those who have lost their homes."
The housing market has remained in a slump across the nation. The S&P/Case-Shiller 20-city index through November showed home values fell 3.7 percent from the previous year.
In January, the Federal Reserve's Federal Open Market Committee announced it expects to keep federal funds rate at zero to 1/4 percent at least through 2014, saying the housing sector remained depressed. The federal funds rate is the rate at which banks lend to each other overnight.