$26 billion settlement reached over mortgages and foreclosure investigation

Five banks have agreed to pay $26 billion to help the nearly 2 million homeowners who were hit by foreclosures and mortgage troubles when the housing bubble crashed, according to various news sources.

The five banks involved include Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co., and together they handle about 55% of outstanding home loan payments, according to The Wall Street Journal.

State and federal officials announced the settlement on Thursday, marking the largest industry settlement since the $206 billion settlement with the tobacco industry in 1998, said The Los Angeles Times. The Department of Housing and Urban Development says over 1 million homeowners could receive aid through the deal.

The New York Times said about $5 billion will go to states and federal authorities, $17 billion will be set aside for homeowner relief, $3 billion for refinancing, and finally $1 billion for the Federal Housing Administration.

The deal is expected to compensate homeowners and mortgage holders and hold the banks accountable for foreclosure abuses, such as flawed and fraudulent documentation, said The Washington Post. “In many cases, due to the way in which loans were hastily packaged and sold to investors, banks had difficulty verifying ownership of the underlying mortgages,” said The Post.

More on GlobalPost: Chase, Bank of America, Wells Fargo sued by New York over mortgage database

Nearly 750,000 borrowers who had their houses foreclosed on since 2008 would be eligible for payouts of $2,000 each. However, Federal Reserve Chairman Ben Bernanke has estimated that US homeowners owe about $700 billion more than their homes are worth, according to The LA Times.

At a press conference, Attorney General Eric Holder said the settlement was an important first step towards “righting the wrongs” that triggered the housing collapse, and reiterated that “It does not — it does not — prevent state and federal authorities from pursuing criminal or civil action,” according to Politico.

More on GlobalPost: Obama proposes home refinancing assistance program

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