WASHINGTON (AP) — Federal officials say a deal has been reached between states and the nation's biggest mortgage lenders over foreclosure abuses.
The Justice Department said Thursday that the settlement will be announced at a 10 a.m. EST news conference.
Five major banks — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — will pay roughly $26 billion to reimburse American homeowners and overhaul their industry.
The nationwide settlement stems from abuses that occurred after the housing bubble burst. Many companies that process foreclosures failed to verify documents. Some employees signed papers they hadn't read or used fake signatures to speed foreclosures — an action known as robo-signing.
The deal would be the biggest involving a single industry since a 1998 multistate tobacco deal. It would force the five largest mortgage lenders to reduce loans for about 1 million households. The reduced loans would benefit homeowners who are behind on their payments and owe more than their homes are worth.
In addition, another 750,000 Americans — about half of the households who might be eligible for assistance under the deal — would likely receive checks for about $1,800 each.
The banks and U.S. state attorneys general agreed to the deal late Wednesday after 16 months of contentious negotiations.
New York and California came on board late Wednesday, according to a person close to the negotiations. The source was not authorized to disclose the agreement before Thursday's announcement.
California has more than 2 million "underwater" borrowers, whose homes are worth less than their mortgages. New York has some 118,000 homeowners who are underwater.
The settlement ends a painful chapter that emerged from the financial crisis, when home values sank and millions edged toward foreclosure. In addition to the payments and mortgage write-downs, the deal promises to reshape long-standing mortgage lending guidelines. It will make it easier for those at risk of foreclosure to make their payments and keep their homes.
Those who lost their homes to foreclosure are unlikely to get their homes back or benefit much financially from the settlement.
The settlement would apply only to privately held mortgages issued from 2008 through 2011. Banks own about half of all U.S. mortgages — roughly 30 million loans.
Some critics say the proposed deal doesn't go far enough. They have argued for a thorough investigation of potentially illegal foreclosure practices before a settlement is hammered out.
Under the deal:
. $17 billion will go toward reducing the principal that struggling homeowners owe on their mortgages.
. $5 billion will be placed in a reserve account for various state and federal programs; a portion of that money will cover the $1,800 checks sent to those homeowners affected by the deceptive practices.
. About $3 billion will help homeowners refinance at 5.25 percent.