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State, Federal Officials Seal Historic $26B Servicer Settlement

*_Update: The story has been updated to reflect a separate $1-billion settlement with Bank of America_*

More than a year's worth of rumors, negotiations, and reversals concluded Thursday with a $26-billion mega-settlement between government officials and the nation's five largest mortgage servicers.

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The size and scope of the settlement makes it the largest endeavor by state and federal officials in U.S. history.

Federal officials and 49 state attorneys general closed a deal with ""Ally Financial Corp."":http://www.ally.com/financial/, ""Bank of America"":https://www.bankofamerica.com/, ""Citigroup"":http://www.citigroup.com/citi/homepage/, ""JPMorgan Chase"":http://www.jpmorganchase.com/corporate/Home/home.htm, and ""Wells Fargo"":https://www.wellsfargo.com/ that supplies homeowners in distress with new relief and establishes new servicing standards.

Departments involved at the federal level ranged from the ""Justice Department"":http://www.justice.gov/ to ""HUD"":http://portal.hud.gov/hudportal/HUD and the ""Office of the Comptroller of the Currency"":http://www.occ.treas.gov/.

""This agreement reflects our commitment ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô at both the federal and state levels ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô to ensure justice, and to recover losses, for victims of reckless and abusive mortgage practices,"" U.S. Attorney General ""Eric Holder"":http://www.justice.gov/ag/ said at a press conference earlier Thursday.

The settlement will apportion $17 billion to homeowners who qualify for principal reduction and loan modification programs, $3 billion to those eligible to refinance their underwater mortgages, and $1.5 billion to approximately 750,000 others who lost their homes to faulty foreclosure practices.

The historic agreement does not absolve the five servicers of separate or class-action lawsuits brought by homeowners or investors.

Holder also said that it would not derail any action under way at the Residential Mortgage-Backed Securities Working Group, which the Obama administration unveiled two weeks ago.

In a separate settlement totaling $1 billion, government officials resolved allegations of fraud committed by the Countrywide unit that Bank of America later acquired in 2008. The settlement helped raise settlements Thursday to $26 billion.

Not all homeowners were considered equal in the delegation of benefits.

[COLUMN_BREAK]

Qualifying California homeowners will receive $18 billion in relief from the settlement, testifying to the state's importance in the foreclosure crisis and the part that politics sometimes played in the process.

California Attorney General ""Kamala Harris"":http://oag.ca.gov/, a highly visible advocate for redress, reportedly threatened to pull out of the pact until federal officials and servicers offered her more from the settlement.

""This is an historic amount of relief for California homeowners, but it is one piece of a broader focus. We will continue our crackdown on mortgage fraud and quickly move to pass legislation that will simplify, reform and upgrade our broken mortgage system,"" she said in a statement.

Of the funds designated for California homeowners, $12 billion will apply to loan principal reductions for those with underwater loans, while about 28,000 others will benefit from an estimated $849 million assigned to refinance programs.

Of eligible states, Oklahoma is the only one whose attorney general strayed from the settlement to pursue a separate accord with the servicers. A statement at ""nationalmortgagesettlement.com"":http://www.nationalmortgagesettlement.com/ said that homeowners from the Sooner State will not benefit from the settlement.

Statements from servicers about the settlement seemed generally supportive but guarded.

A spokesperson with Chase said that the bank had ""worked very hard"" with officials over the past year to produce the settlement, adding that it ""includes far reaching relief that will help many of our customers and complement our already extensive efforts to improve our borrower assistance efforts and servicing processes.""

""Dan Frahm"":http://www.linkedin.com/pub/dan-frahm/5/64/9b7, a spokesperson with Bank of America, said that the settlement would ""help provide additional support for homeowners who need assistance, [bring] more certainty to the housing market and [align] to our ongoing commitment to help rebuild our neighborhoods and get the housing market on track.""

""Mike Heid"":https://www.wellsfargo.com/about/corporate/executive_officers/heid, president of Wells Fargo Home Mortgage, called the agreement ""a very important step toward restoring confidence in mortgage servicing and stability in the housing market"" and said that the financial institution ""welcomes the establishment of servicing standards as part of this agreement.""

Few released their actual contributions in these statements.

For its part, Wells Fargo will pay $5.3 billion, reserving $3.4 billion for principal reductions and short sales, $1 billion in unrestricted funds for federal and state governments to resolve the foreclosure crisis, and $900 million for first-lien refinance loans.

Citigroup said that it would contribute $2.2 billion to homeowners in three installments that included cash upon settlement, relief payments, and refinancing concessions.

Ally offered $310 million, with $110 million in unrestricted funds for state and federal programs and $200 million in homeowner relief.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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