Mortgage deal could help 2 million Americans

Proposed $25 billion settlement with major mortgage lenders would be biggest in 14 years. Much of the money would go to struggling homeowners and former homeowners hit by improper foreclosures.

A nationwide plan to help nearly 2 million homeowners hit by the mortgage meltdown and improper foreclosure practices could be announced as early as Thursday under a multi-state settlement hammered out by states' attorneys general and the nation's major lenders.

The proposed $25 billion deal would be the largest since the $206 billion settlement with the tobacco industry in 1998. Much of the bank settlement is expected to go to people who are having trouble paying theirmortgages or have lost their homes to foreclosure.

As many as 1 million homeowners could receive mortgage aid through the proposed deal, according to the Department of Housing and Urban Development.

About $17 billion is expected to go toward direct relief to borrowers, a big chunk of that being principal reductions, or the write-downs of mortgage debt, as well as other kinds of loan modifications or assistance. About $3 billion would go toward helping borrowers refinance into new, lower-cost loans.

An additional $5 billion would go toward a reserve account for state and federal programs and to individual homeowners harmed by bank practices. Negotiators have said that about 750,000 people could receive checks for about $1,500 to $2,000.

Two crucial holdouts to the deal, California and New York, were close to signing the agreement Wednesday night, although important stumbling blocks remained, according to people with knowledge of the negotiations.

The agreement could be postponed again, given the complicated nature of the settlement and the many parties involved, said these people, who wished to remain anonymous because they weren't authorized to speak publicly.

Government officials were making arrangements late into the evening for a flurry of announcements Thursday. A planned briefing by federal officials for reporters late Wednesday night was canceled amid last-minute negotiations, showing how much the situation was in flux.

The massive effort, more than a year in the making, is the most recent government attempt to boost the limping housing market and help people whose homes lost significant value in the housing crash.

But even such a sizable settlement pales against the scope of the housing problem. According to Federal Reserve Chairman Ben S. Bernanke, for instance, U.S. homeowners owe about $700 billion more than their homes are worth.

Monday was the deadline for individual states to either reject or accept a deal, though several key states, including California and New York, did not sign on then.

The settlement negotiations follow revelations in 2010 that the nation's largest banks allegedly had foreclosed on borrowers using improper and potentially illegal means.

The Obama administration has been pushing hard for a settlement among the state attorneys general and the nation's five largest mortgage servicers _ Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. _ and certain federal agencies.

Negotiators with the office of California's attorney general have spent much of the week in round-the-clock negotiations with major mortgage servicers. California's assent is key because it would increase the size of the settlement to $25 billion from $19 billion without the state.

One big hurdle has been California's concern that the deal would release the large servicers from legal action, including violations of state laws, for issues that had not been thoroughly investigated, including securities probes related to losses sustained by the California Public Employees' Retirement System, the nation's largest public pension fund.

California Attorney General Kamala D. Harris left the settlement talks in September, saying banks weren't providing enough money for California homeowners and were asking for too much legal forgiveness. After California stepped away, the release from legal claims for the servicers was broadened to include issues related to the origination of mortgages. Harris wants to retain the ability to get restitution for such claims, particularly regarding predatory lending.

Language over the degree of the release from legal claims remained a big issue of contention for California on Wednesday night, a person familiar with the negotiations said.

In New York, the settlement has been complicated by state Attorney General Eric Schneiderman's recent lawsuit against three of the banks in the discussions _ Bank of America, Wells Fargo and Chase _ alleging that their use of an electronic database has resulted in widespread deception and fraudulent foreclosure practices, according to a person familiar with the matter.

Schneiderman, who has been one of the most vocal critics of the talks, has said that a multi-state foreclosure settlement could shut down his own investigations into mortgage misdeeds of Wall Street leading up to the financial crisis.