The biggest banks in the US will be forced to provide $25bn in relief to distressed home owners and states in an effort to hold lenders responsible for taking illegal shortcuts during foreclosures and other mortgage paperwork, the US administration says.
The settlement, announced on Thursday, seals more than a year of negotiations after evidence emerged late in 2010 that banks automatically signed thousands of foreclosure documents without properly reviewing paperwork.
It means that the banks will have to reduce loans for about a million homeowners around the country. The banks will also have to compensate victims over improper foreclosures.
"We have reached a landmark settlement with the nation's largest banks that will speed relief to the hardest hit homeowners," President Barack Obama said after the deal was announced.
"This isn't just good for these families. It's good for their neighobourhoods, it's good for their communities, and it's good for our economy."
The Obama administration has also said it hopes the settlement will open a new avenue for housing relief because it will force the banks to write down mortgages at a time when roughly one in four borrowers owe more on their mortgage than their home is worth.
Millions not helped
The US justice department, the housing and urban development department, and a handful of state attorneys general announced the deal at a news conference in Washington.
Some large states, such as California and New York, joined at the last minute.
"The president was quick to highlight the million home owner that will basically owe less now. ... That's a million people, but there are 12.5 million Americans who are in that position," Al Jazeera's Patty Culhane said, reporting from Washington DC.
"To the million people it will feel like a very big settlement. To the 11.5 million that are left still without any help, it probably won't seem like a very good deal.
"There's a huge amount of anger in this country that the banks got a government bailout and have returned to record profits, but [people] feel that [banks] are not actually helping the American people get their own bailout."
The banks involved in the deal are Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial Incorporated.
The Federal Reserve said on Thursday that as part of the larger $25bn figure agreed to by US banks and states, it was imposing penalties totalling $766.5m on the five US banks in question.
Although the deal that involves 49 states is the largest joint federal-state settlement ever obtained, the amount is minuscule compared to the declines in home values, and the banks still face a host of other mortgage-related lawsuits.
"The bottom line about this settlement, is it's okay, it's a step forward, it's a step in the right direction. But let's not kid ourselves, there's a hell of a lot more that needs to be done," Ira Rheingold, executive director of the National Association of Consumer Advocates, said.
Source: Al Jazeera and agencies