What the $25B Foreclosure Settlement Means for You

Feb. 9. 2012 —, 2012 -- While the $25 billion foreclosure settlement announced on Thursday is a landmark multi-state deal, it is just a "drop in the bucket" that will help residents of some states more than others, housing advocates say.

The five biggest mortgage servicers, JPMorgan Chase, Citi, Ally Financial, Wells Fargo and Bank of America, have settled, but more lenders could potentially join later. Under the deal, signed by 49 state attorneys general, 750,000 people could receive checks under the plan, and another 1 million could see the size of the mortgage reduced.

President Obama said the deal could strengthen the overall economy but "by itself will not entirely heal the housing market," he said.

"But this settlement is a start," the president said.

Gordon Whitman, policy director for PICO National Network of faith-based community organizations, said the deal is "'too small." The $10 billion in principal reduction compared to $700 billion in negative equity in the U.S. and total outstanding mortgage debt of $8.8 trillion is a "small drop in the bucket of what really needs to be done."

"It needs and will lead to much more significant principle reduction for American homeowners," he said. "There are a lot of people talking about closure. From our perspective, it's much more logical to think of this as a first step."

He said the size of the announced deals per state thus far reflect the commitment of each attorney general. Homeowners can check the website NationalMortgageSettlement.com to be directed to the website for each state attorney general, except for Oklahoma.

The deals announced for California and Florida, two of the hardest hit states in foreclosures, reflect the imbalance in the settlements, he said. California will receive up to $18 billion including banks enacting a minimum of $12 billion in principle reductions for the state's homeowners as part of a separate agreement. More importantly, Whitman said, California's attorney general Kamala Harris fought for narrower legal releases so the investigation into abusive practices can continue, more so than Pam Bondi, Florida's attorney general.

Also, Harris reportedly fought for a larger amount for principal reduction for underwater homeowners.

"We think the continued advocacy by the attorneys general is the critical factor to make sure this is just a down payment on a full and fair settlement," Whitman said.

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.

Florida's share of the total monetary benefits under the settlement is about $8.4 billion. Florida borrowers will receive an estimated $7.6 billion in benefits from loan modifications, including principal reduction, and other direct relief. About $170 million will be available for cash payments to Florida borrowers who lost their home to foreclosure from Jan. 1, 2008 through Dec. 31, 2011 who were the victims of abuses. The value of refinanced loans to Florida's underwater borrowers would be an estimated $309 million.

Scott Brown, chief economist with Raymond James, said the one million homeowners who may restructure their mortgages comprise only 10 percent of those underwater. Brown said the deal will not have a large impact on the U.S. economy or consumers.

"Every little bit helps and it will be significant for those restructuring, but it's not going to have a huge impact on the housing sector overall," he said.

Payments of about $2,000 will be made to about three-quarters of a million households that were foreclosed on through abusive practices, distributed over three years.

"That will be good for those receiving checks, but the impact on overall consumer spending is likely to be relatively small," he said, though the size of the deal could change if more mortgage servicers join later.

The Neighborhood Assistance Corporation of America said it is disappointed the Obama administration failed to address the government owned or insured mortgages.

"The state attorney generals were very successful in obtaining significant assistance from the banks they can impact," the group said in a statement. "The Obama administration continues to show that they are unwilling to require the government mortgage programs, which constitute 80 percent of the total mortgages (i.e. FHA, VA, Fannie Mae and Freddie Mac), to be responsive in preventing foreclosures and in restructuring/modifying mortgages to make them affordable."

The deal would apply to loans that were not sold to mortgage guarantors Fannie Mae and Freddie Mac.

Bank of America has issued the following statement:

"We believe this settlement will help provide additional support for homeowners who need assistance, brings more certainty to the housing market and aligns to our ongoing commitment to help rebuild our neighborhoods and get the housing market back on track."

ABC News' Mary Bruce and Zunaira Zaki contributed to this report.