The nation’s five largest banks and a consortium of state attorneys general are closing in on finalizing a settlement of at least $25 billion for the roles the banks played in the mortgage meltdown, POLITICO has confirmed. 
 
 If completed, the deal would be the largest of its kind in history, rivaling the 1998 settlement states reached with the tobacco industry, and the largest civil action ever against the housing industry. The agreement would cap a year-long series of negotiations designed to hold banks accountable for falsifying documents related to home foreclosures in several states. 
 
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 Under the proposed terms, mortgage debt would be cut for about 1 million homeowners, while another 300,000 would have their loans re-financed at lower interest rates. Roughly 750,000 who were foreclosed on would each be compensated for their loss with $2,000. 
 
 More than two million Americans could benefit from the settlement, according to a source familiar with the negotiations. 
 
 But it won’t exempt the banks from all liabilities: Government officials would still be able to investigate potential crimes connected to the housing bubble, in addition to investigating mortgage industry practices such as bundling sub-prime mortgages into bonds, the source said. 
 
 The bulk of the settlement would be set aside for struggling homeowners, including loan modifications, refinancing and principal reduction — rewriting the mortgage to reflect the current value of the home. Another portion of the money would fund a reserve account for state and federal programs and for payments to homeowners whose mortgages were improperly processed. 
 
 The consortium effort between the Justice Department and the 50 state attorneys general, led by Iowa Attorney General Tom Miller, has been looking to strike the deal with Bank of America, Citigroup, JPMorgan Chase, Ally Financial and Wells Fargo. 
 
 A deal had been widely anticipated at several points, but hit snags as several attorneys general — including Eric Schneiderman of New York, Kamala Harris of California and Beau Biden of Delaware, son of Vice President Joe Biden — raised concerns that the proposal was too small and would grant the banks immunity from possible prosecution for fraud. On Monday night, the Huffington Post, citing sources, reported that Harris and Biden agreed to join the settlement. 
 
 Others expressing reservations had included the attorneys general of Minnesota, Nevada, Massachusetts and Kentucky. ||||| “The effect of this settlement will be catalytic,” Shaun Donovan , the secretary of Housing and Urban Development , said in an interview. 
 
 He predicted it would spur more loan modifications through existing government programs as well as principal reductions — when loan debt is written down for borrowers who owe more than their home is worth — as well as additional mortgage relief provided by banks. 
 
 “We do believe there should be principal reduction at Fannie Mae and Freddie Mac,” he added. “We’ve been disappointed that this hasn’t happened thus far.” He said the government had proposed incentives for Fannie and Freddie to cut loan balances under an existing program, and the two mortgage giants were studying the idea. 
 
 Advocates for homeowners facing foreclosure expressed cautious optimism after the settlement was announced Thursday morning in Washington. “We’re hopeful,” said Joseph Sant, a lawyer at Staten Island Legal Services’ homeowner defense project. “But we had a lot of programs that are good on paper. What will make the difference is that it’s vigorously enforced.” 
 
 President Obama declared the deal the largest federal-state settlement in the nation’s history. 
 
 “No compensation, no amount of money, no measure of justice is enough to make it right for a family who’s had their piece of the American dream wrongly taken from them,” he said. “And no action, no matter how meaningful, is going to by itself entirely heal the housing market. But this settlement is a start.” 
 
 Homeowners in two states — Florida and California — will reap more than half of the $26 billion settlement, a reflection of the disproportionate number of loans that are delinquent or exceed the value of the underlying property there, government regulators said. 
 
 The amounts from individual banks were linked to their share of the servicing market. The biggest, Bank of America, would provide $11.8 billion, followed by $5.4 billion from Wells Fargo, $5.3 billion from JPMorgan Chase , $2.2 billion from Citigroup and $310 million from Ally. Bank of America would contribute an additional $1 billion for Federal Housing Administration loans. 
 
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 And if nine other major mortgage servicers join the pact, a possibility that is now under discussion with the government, the total package could rise to $30 billion. 
 
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 Banks stocks were mixed in trading Thursday, but shares of Bank of America rose 0.62 percent to $8.18, its highest level since September. Much of the money to pay for the settlement has already been reserved, and investors expect the settlement to remove at least one legal worry for Bank of America. 
 
 More than just an attempt to aid consumers and stabilize the housing market, government officials cast the settlement as an effort to finally hold banks accountable for their misdeeds, more than three years after the mortgage collapse brought on a full-scale financial crisis. 
 
 The deal is about “righting the wrongs that led to the housing market collapse,” said Eric H. Holder Jr. , the United States attorney general. “With this settlement, we recover precious taxpayer resources, fix a broken system and lay a groundwork for a better future.” 
 
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 The agreement does not release banks from a variety of other suspected misdeeds. Regulators and prosecutors could still pursue allegations of fraud in the process by which those loans were made, known as origination, and the packaging of those mortgages into securities sold to investors by the big banks. 
 
 “We’re going to keep at it until we hold those who broke the law fully accountable,” Mr. Obama said. The agreement also imposes new standards that banks will have to follow as they deal with distressed homeowners. Mr. Donovan said the settlement would “force the banks to clean up their acts. No more lost paperwork, no more excuses, no more runaround.” 
 
 Though some mortgage advocates praised the settlement as a needed step in the right direction, Katherine Porter, a law professor at University of California Irvine , was more skeptical. 
 
 “We have to look at this as being a modest settlement even thought the number itself, the $26 billion, is an eye-popping number,” said Ms. Porter. “There are millions of people who have lost their homes and this settlement will only affect a relatively small number of them.” 
 
 She was also surprised at the time — three years — that the servicers were being given to put the settlement into effect. 
 
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 “That reflects to me a lack of urgency. That the banks don’t think it is urgent or they still haven’t gotten the staff, technology, ethos or platforms set up to help people quickly,” said Ms. Porter. 
 
 “That three-year window makes me really nervous because a lot of people could be out of their homes by then.” 
 
 What is more, other critics are raising questions about so-called moral hazard, the danger that more relief encourages homeowners to default in the hopes of getting aid. News of the settlement also reignited resentment from homeowners who are current on their payments, and have shunned government aid. 
 
 Some state attorneys general closely involved with the settlement acknowledged that it provided only a small amount of restitution to individuals who lost their homes in foreclosures, even though they said their investigations uncovered rampant evidence of robo-signing and enormous problems with the servicing aspects of the loans. 
 
 “This agreement is more important for the foreclosures we’re hoping to prevent,” said Roy Cooper, the attorney general for North Carolina . 
 
 For homeowners like the Coopers and Mr. de Leon there is still hope, even if it won’t come through Thursday’s settlement. Both Bank of America and Wells Fargo said Thursday they were exploring other options that could prevent foreclosure.
– America's five biggest banks have hammered out a $26 billion settlement for their role in causing the mortgage meltdown, reports the Wall Street Journal. The deal—the biggest of its kind since 1998's $206 billion settlement with the tobacco industry—was hammered out during almost a year of negotiations between the banks and all 50 state attorneys general, reports the New York Times. The money will go to some 2 million homeowners affected by the crisis. Under the settlement, some 750,000 people who lost their homes to foreclosure will receive payouts of around $2,000 each, a million people will have their mortgage debt cut, and 300,000 will be able to refinance their homes at lower rates, reports Politico. Analysts say that the deal, while small compared to the $700 billion in negative equity American homeowners are struggling with, could do a lot to turn the housing market around. Banks sought immunity from prosecution in return for the settlement, but officials will still be able to investigate any criminal wrongdoing in mortgage robo-signing and other abuses.