US, Banks Agree on $26B Foreclosure Pact

(The Wall Street Journal) - Government officials finalized an agreement worth as much as $26 billion with five major banks, capping a yearlong push to settle federal and state probes of alleged foreclosure abuses by lenders.

The deal represents the largest government-industry settlement since a multi-state deal with the tobacco industry in 1998.

The agreement covers five banks: Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase & Co. and Wells Fargo & Co. Together, the five handle payments on 55 percent of all outstanding home loans, or about 27 million mortgages, according to Inside Mortgage Finance.

Federal and state officials planned to announce the settlement Thursday morning in Washington after putting the finishing touches on the deal following a marathon negotiating session that ended after midnight Thursday morning.

The agreement will include at least 49 states, and officials were finalizing a separate accord with one remaining holdout, Oklahoma.

The Obama administration made a full-court press over the past four days to secure the support of key state attorneys general, including those from Florida, California and New York. All three states are expected to be part of the announcement, people familiar with the situation said.

Representatives of the banks declined to comment.

The planned pact would involve around $5 billion in cash penalties, payable to borrowers, states and the federal government. That includes $1.5 billion in cash payments to borrowers who went through foreclosure between September 2008 and December 2011. Borrowers could receive $1,500 to $2,000 each, with the actual amount paid depending on the number of borrowers filing a claim.

The agreement is expected to call on the banks to provide $20 billion in other aid -- by cutting loan balances for tens of thousands of homeowners and by refinancing thousands of borrowers who are current on their loans but owe more than their homes are worth.

Read more: The Wall Street Journal