More than 2 million Americans could benefit from at least $25 billion in relief from the nation's biggest banks as part of a broad government settlement to be announced as early as today, according to the New York Times, Washington Post and other media outlets.
The agreement is the broadest effort yet to help borrowers owing more than their houses are worth, with roughly 1 million expected to have their mortgage debt reduced by lenders. In addition, 300,000 homeowners are expected to be able to refinance their homes at lower rates, while another 750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011 will receive checks for about $2,000.
The final details of the pact were still being negotiated Wednesday night, including how many states would participate and when the formal announcement would be made. The two biggest holdouts, California and New York, now plan to sign on, according to the New York Times, which cited officials with knowledge of the matter who did not want to be identified because the negotiations were not completed.
Previously undecided states such as Florida and Massachusetts also were expected to back the agreement, the Post reported.
The Wall Street Journal quoted a spokeswoman for Florida Attorney General Pam Bondi as saying that "while Attorney General Bondi has not yet joined the settlement, she is hopeful that a resolution will be reached soon."
If finalized, the deal would mark the largest industry settlement since a multistate deal with tobacco companies in 1998.
The settlement grew out of an investigation into mortgage servicing by all 50 state attorneys general that was introduced in the fall of 2010 amid an uproar over revelations that banks evicted people with false or incomplete documentation.
In the 14 months since then, the scope of the accord has broadened from an examination of foreclosure abuses to a broad effort to lift the housing market out of its biggest slump since the Great Depression. Four million Americans have been foreclosed upon since the beginning of 2007, and the huge overhang of abandoned homes has swamped many regions, like Florida, California and Arizona.
The five banks in the settlement — Bank of America, JP-Morgan Chase, Wells Fargo, Citigroup and Ally Financial — have largely set aside reserves for the expected cost of the accord and investors are likely to cheer its announcement, analysts said.
"I wouldn't say it's a panacea for the housing industry, but it is good for the banks to get this behind them," said Jason Goldberg, an analyst with Barclays.
The deal will not substantially reduce the debt left from the housing bust, nor will it help everyone who may have been hurt by foreclosure abuses. About one in five Americans with mortgages are underwater, which means they owe more than their home is worth. Collectively, their negative equity is almost $700 billion. In Florida, about 1.9 million mortgages, or 44 percent, were underwater in the third quarter of last year, according to CoreLogic.
"I just don't think it's going to be a life-changing event for borrowers," said Gus Altuzarra, whose company, the Vertical Capital Markets Group, buys loans from banks at a discount.
Not all of the aid would go to outright reduction of mortgage debt. Banks can also get credit for other types of relief like conducting short sales, in which a homeowner is allowed to sell a home for less than is owed, and refinancing underwater homeowners at lower rates.
Several billion dollars would cover the direct cash payments to foreclosure victims as well as providing money for states' attorneys general to use in services like mortgage counseling and future investigations into mortgage fraud.
More than the dollar figures, the settlement had been held up amid concern by New York's attorney general, Eric T. Schneiderman, that it provided releases that gave too broad an amnesty to banks for past misdeeds, making future investigations much more difficult.
Schneiderman was able to win significant concessions from the banks in recent days. In the agreement's expected final form, the amnesty is mostly limited to the foreclosure process, like the eviction of homeowners after only a cursory examination of documents, a practice known as robo-signing.
The prosecutors and regulators still have the right to investigate other elements that contributed to the housing bubble, like the assembly of risky mortgages into securities that were sold to investors and later soured, as well as insurance and tax fraud.