Federal and state officials on Thursday announced a landmark $25-billion agreement with the nation’s five largest mortgage servicers to settle investigations involving foreclosure abuses and try to stabilize the housing market.
The deal would give $17 billion in relief to current homeowners, mostly by reducing the amount of principal they owe on their mortgages.
An additional $5 billion would be paid in cash to California and more than 40 other states as restitution for foreclosure paperwork problems and other improprieties by the servicers in the foreclosure process. Officials said hundreds of thousands of homeowners would probably get $1,700 to $2,000 each under that part of the deal. About $1.5 billion of the $5 billion would be distributed directly to people whose homes were foreclosed on from 2008 through 2011.
In addition, the five servicers -- Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. -- agreed to spend about $3 billion to refinance about 1 million existing mortgages, most of those likely to be for homeowners whose properties are worth less than they owe on their loans.
The $3 billion is the amount the servicers would lose on the refinancings, not the total amount of principal to be written down, which officials expect will be much larger.
And as part of the deal, $1 billion will come from one of the servicers to settle other outstanding claims.
Federal and state officials will announce the settlement this morning. Iowa Atty. Gen. Tom Miller, who led the more-than-year-long negotiations will join U.S. Atty. General Eric Holder, Housing and Urban Development Secretary Shaun Donovan and other officials at a Washington news conference.
California Atty. Gen. Kamala D. Harris, who was one of the last state holdouts, will announce the state’s participation during a Los Angeles news conference Thursday morning.
"California families will finally see substantial relief after experiencing so much pain from the mortgage crisis," Harris said in a statement Thursday morning. "Hundreds of thousands of homeowners will directly benefit from this California commitment."
Federal and state officials will try to get another nine large mortgage servicers to sign on to the settlement, which could increase the deal to $30 billion.
The servicers will get various credits for actions they take as part of the settlement, which could increase the total amount of assistance to homeowners.
The complex series of credits are designed to encourage the servicers to make payments over the next year to speed assistance to struggling homeowners and quickly aid the housing market. Under the deal with the five largest servicers, the credits could result in a total of $40 billion in relief to homeowners. If the other nine servicers sign on to the deal, the total relief could reach $45 billion.
Harris said Californians could receive up to $18 billion in assistance from the settlement.
[For the record, 10:22 a.m. Feb. 9: An earlier version of this post said the mortgage foreclosure settlement totaled $26 billion, based on a figure from the Department of Housing and Urban Development. The department has revised the total to $25 billion.]