Mortgage deal is broadest action taken in foreclosure crisis

— -- For almost 1 million homeowners, the $25 billion federal-state mortgage settlement announced Thursday may be like winning a lottery.

Their mortgage debt will be cut by thousands of dollars in the broadest effort yet to help borrowers struggling to make payments on homes that have plunged in value the past five years.

Given that homeowners owe an estimated $700 billion more on their homes than they're worth, much more will be needed to strike a serious blow at the foreclosure crisis, housing experts say.

They also warn that the historic deal will have a limited impact on the housing market. Prices are still falling in much of the U.S. despite a 33% drop since late 2006.

"This will make a dent in the foreclosure crisis, but it's not going to stop it," says Alan White, mortgage lending expert at the Valparaiso University School of Law.

The settlement also gives little immediate relief to the majority of U.S. homeowners who are current on their home payments, and even less relief for homeowners who'll likely never end up with a distressed loan.

President Obama and other officials were quick to note Thursday that the settlement is no cure-all, but it does mark the most concrete action taken to date to compensate homeowners for past mortgage servicing and foreclosure abuses. Lenders have three years to fulfill their obligations under the settlement and receive incentives to provide relief within 12 months.

The accord also creates a testing ground for whether principal reduction can actually reduce default rates and, if successful, the settlement may drive more principal reduction, supporters say.

"This agreement is the only way we're going to get to substantial principal reduction," says Tom Miller, the Iowa attorney general who helped lead the settlement efforts along with other state attorneys general and federal officials.

The deal shows that "we can still get big things done in this country," said Shaun Donovan, secretary of Housing and Urban Development.

The settlement — the largest involving a single industry since the 1998 multistate tobacco deal — covers five major mortgage servicers: Bank of America, Wells Fargo, JPMorgan Chase, Citibank and Ally Financial.

Federal officials said Thursday that the deal's value could grow to $30 billion if nine more servicers sign on. Negotiations are underway with some of them.

As it is, the deal includes $5 billion in cash and $20 billion in loan modifications that the five servicers will make — mostly for borrowers who're delinquent on loans and underwater on their homes, meaning they owe more on their homes than they're worth.

California and Florida, two big states devastated by foreclosures, will get the largest share of the money, followed by Arizona, Illinois and Nevada, Donovan said.

Bank of America, the largest servicer, will be responsible for $11.8 billion of the $25 billion deal. Wells and JPMorgan Chase: $5.3 billion each. Citigroup, $2.2 billion and Ally, $310 million.

Oklahoma has separate settlement

Oklahoma is the only state that didn't sign on to the settlement. Its housing market didn't suffer as badly as most others. Oklahoma Attorney General Scott Pruitt criticized the national deal, saying it goes too far and rewards homeowners who stopped paying their mortgages over those who continued to make payments.