Nation & World

WASHINGTON — State and federal regulators Thursday announced a settlement worth at least $25 billion with Bank of America and four other large banks, ending years of litigation over alleged foreclosure abuses. The deal offers help to struggling homeowners, but experts view it more as a moral victory with limited impact on the broader housing market.

The announcement, affecting 49 states, capped months of negotiations among federal regulators, state attorneys general, consumer advocates and big players on Wall Street and in finance. It was the largest government-industry settlement involving states since the $200 billion-plus tobacco-industry settlement in 1998.

Oklahoma announced a separate deal with the five banks.

About 1 million households at risk of foreclosure should be able to reduce their loans. About 750,000 others who lost their homes to foreclosures will receive about $2,000 each. The banks have three years to distribute the assistance, and the deal will be monitored for compliance.

The settlement effectively punishes the banks for alleged abuses in the foreclosure process, including robo-signing, in which fraudulent documents are used in court proceedings when trying to take back properties from homeowners who are delinquent on mortgages.

"Under the terms of this settlement, America's biggest banks, banks that were rescued by taxpayer dollars, will be required to right these wrongs. And that means more than just paying a fee," President Obama said.

The banks are required to dedicate $20 billion in relief to homeowners, including $10 billion toward reducing principal for struggling borrowers. The banks also must provide $5 billion in cash to federal and state governments to assist foreclosure-relief programs.

In return, the 49 states said they won't pursue civil charges related to abuses. Homeowners still can sue lenders in civil court, and federal and state authorities can pursue criminal charges.

The five banks that agreed to settle federal and state investigations are Bank of America, on the hook for the biggest payout; JPMorgan Chase; Citigroup; Wells Fargo; and Ally Financial. Ally is a Detroit-based bank-holding company affiliated with Chrysler and General Motors and still partially owned by the federal government.

Negotiations with nine other major servicers continue.

Not everyone will qualify for help. The settlement money will be used on a state-by-state basis to help wipe out some of the principal on mortgages that aren't owned or backed by Freddie Mac or Fannie Mae — about 55 percent of all outstanding mortgages. Those mortgages must be of values higher than current market prices for the homes.

The Justice Department late Thursday announced another agreement in which Wells Fargo, Citigroup and Ally will be required to provide any military-service member who was the victim of a wrongful foreclosure with a minimum of $116,785, plus the service member's lost equity and interest. Service members also will be compensated for any additional harm suffered.

Consumer advocates and housing activists said the deals are flawed because they cover only a fraction of at-risk homeowners. Critics note the $2,000 compensation will apply only to those who lost their homes through foreclosure from Jan. 1, 2008, to Dec. 31, 2011.

"The deal announced today is too small," said Pico National Network, a faith-based group active on housing issues. "It falls far short of providing real justice for homeowners and American families."

Apart from the money, the deal requires the first-ever standardization of practices for mortgage servicers. Often owned by big Wall Street banks, they collect mortgage payments on behalf of investors who own pools of mortgages packaged together as bonds.

"It is a pretty major step to ensuring that servicers will be standardized and have much more consumer-friendly processes ... and that's a big step forward," said Barry Zigas, of Consumer Federation of America.

As the foreclosure crisis spread, the lack of a single point of contact often frustrated owners trying to stay in their homes. Servicers also often lost documentation, changed rules during the process and denied loan modifications without explanation.

Housing experts also doubted the settlement Obama described as a "landmark" will have a broader impact on the struggling housing sector.

Obama stressed the settlement dealt only with problems in servicing of mortgages, and that his administration continues to investigate alleged fraud in the origination of mortgages and their packaging as mortgage-backed securities.

There are 43.5 million outstanding mortgages in the United States, according to the Mortgage Bankers Association, and economists estimate more than 10 million homes are worth less than the mortgages they carry, known as being "underwater."

"Realistically, the settlement wasn't really initiated with the notion of right-sizing every mortgage in the country," said Rick Sharga, a foreclosure expert and executive vice president at Carrington Mortgage Holdings in San Diego.

The Treasury Department has been encouraging lenders to forgive "underwater" portions of mortgages, and Thursday's settlement forces some of that to happen.

Information from The Associated Press is included in this report.