$25B US mortgage deal goes to states

A draft settlement between the nation’s major banks and U.S. states over deceptive foreclosure practices has been sent to state officials for review.

Those who lost their homes to foreclosure are unlikely to get their homes back or benefit much financially from the settlement, which could be as high as $25 billion. About 750,000 Americans could receive checks for about $1,800 under the deal.

But the agreement could reshape long-standing mortgage lending guidelines and make it easier for those at risk of foreclosure to restructure their loans. And roughly 1 million homeowners could see the size of the mortgage reduced.

Five major banks — Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial — and U.S. state attorneys general could adopt the agreement within weeks, according to two officials briefed on the discussions. They spoke on condition of anonymity because they are not authorized to discuss the agreement publicly.

It would be the biggest overhaul of a single industry since the 1998 multistate tobacco deal.

President Barack Obama is expected to address the housing crisis and unveil new administration proposals during his State of the Union address on Tuesday.

The settlement would only apply to privately held mortgages issued between 2008 and 2011, not those held by government-controlled Fannie Mae or Freddie Mac. Fannie and Freddie own about half of all U.S. mortgages, roughly about 31 million U.S. home loans.

As part of the deal, about 1 million U.S. homeowners could also get the principal amount of their mortgages written down by an average of $20,000. One in four homeowners with a mortgage — or roughly 11 million people — owe more than their home is worth. These so-called “underwater” borrowers have little chance at refinancing.

Democratic attorneys general are meeting Monday in Chicago to discuss the deal with Housing and Urban Development Secretary Shaun Donovan. Republican attorneys general will be briefed about the deals via conference call later in the day.

Under the deal:

— $17 billion would go toward reducing the principal that struggling homeowners owe on their mortgages.

— $5 billion would be placed in a reserve account for various state and federal programs; a portion of that money would cover the $1,800 checks sent to those homeowners affected by the deceptive practices.

— About $3 billion would to help homeowners refinance at 5.25 percent.

Negotiations have been dragging on for more than a year over fraudulent foreclosure practices that drove millions of Americans from their homes during the housing crisis.

In October 2010, major banks temporarily suspended foreclosures following revelations of widespread deceptive foreclosure practices by banks. Discussions then began over a national settlement.