WASHINGTON D.C. – 49 of 50 State Attorneys General have reached a $25 billion settlement deal with the nation's biggest mortgage lenders over foreclosure abuses that took place after the housing bubble burst in 2008.
The deal requires five of the largest banks to reduce mortgage loans for about a million homeowners with homes that are underwater, meaning the home is worth less than what is owed.
The banks will also send checks of $2,000 to about 750,000 Americans who were improperly or unfairly foreclosed upon.
The banks participating in the settlement are Bank of America, Wells Fargo, JP Morgan Chase, Citigroup and Ally Financial.
The banks have three years to comply with the terms of the deal.
The settlement is aimed at resolving a painful chapter in the recession when home values plummeted pushing millions of people into foreclosure.
Companies were processing foreclosure documents without verification.
Some employees were signing papers they hadn't even read or used fake signatures to speed up the foreclosure and eviction process, now infamously known as "robo-signing."
President Obama says the settlement holds the big banks accountable.
"Under the terms of this settlement, America's biggest banks, banks that were rescued by taxpayer dollars, will be required to right these wrongs", Obama told reporters at a press briefing in Washington.
Economists, consumer advocates and housing activists say the settlement is flawed because it covers only a fraction of at-risk homeowners.
They also say the total amount, $25 billion, only scratches the surface of the larger problems that continue to drag down the housing market.
A settlement administrator designated by the State Attorneys General will send claim forms to people eligible for the $2,000 cash restitution.
It's only for people who lost their home to foreclosure between January 1, 2008 and December 31, 2011 and if their mortgage loans were serviced by the five major banks participating in the settlement.
The same rules apply to any mortgage loan modification under the settlement and as long as homeowners are current on their loans.
