Obama says $26 billion deal with banks will help millions of homeowners

President Obama hailed a landmark deal struck Thursday with the nation’s largest banks over alleged foreclosure abuses, arguing it will help millions of people dealt a blow by the sagging housing market.

Under the agreement reached Thursday, large banks — including JPMorgan Chase, Bank of America and Citigroup — are expected to pay approximately $26 billion to cover refinancing costs for homeowners and reimburse them for shoddy foreclosure practices.

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The investigation began in late 2010 over “robo-signing,” a practice in which lenders signed off on foreclosures without thoroughly examining the contents and verifying the information. Negotiations lasted 16 months until a deal was reached Wednesday night, with New York and California agreeing to join in the settlement. Other states that had wavered, including Massachusetts, also are signing off on the agreement.

“These practices were plainly irresponsible, and we refused to let them go unanswered,” Obama said at the White House, standing before Attorney General Eric Holder and Housing and Urban Development Secretary Shaun Donovan, who helped guide the settlement. “This settlement is a start. We’re going to make sure that the banks live up to their end of the bargain.”

Under the settlement, on the heels of what Obama called “the worst economic crisis of our lifetimes,” the banks “will right these wrongs” and attempt to turn the page “on an era of recklessness that left so much damage in its wake.”

The settlement could be a political boon to Obama, who is hoping an improving economy will help him roll to reelection. The president received more good news Thursday when weekly unemployment claims dropped to 358,000, lower than expected.

Housing has been a sore point for Obama, whom House Democrats had criticized for doing too little to help beleaguered homeowners struggling with mortgages higher than the value of their homes.

But the new settlement, intended to allow millions of homeowners to recoup losses and refinance their mortgages, could help the president win over voters.

In his comments, Obama — who put forth his own housing plan last week — sought to put the onus on Congress to take action on housing.

He said Congress needs to build on the settlement and help more Americans “get back on their feet.”

In the nine-minute speech, the president said the economy will only get better if Congress “musters the will to act,” and he urged lawmakers to broaden the economic impact building off this settlement.

“Now is not the time to pull back,” Obama said. “Send me the bill I proposed.

“There really is no excuse for inaction. There’s no excuse for doing nothing to help more families avoid foreclosure. That’s not who we are. We are Americans and we look out for one another. We get each other’s backs. That’s not a Democratic issue. That’s not a Republican issue. That’s who we are as Americans.”

Earlier Thursday, Donovan emphasized that the settlement isn’t limited to $26 billion, and that consumers could receive at least $35 billion in mortgage-principal reductions.

The agreement could continue to expand, possibly to upward of $45 billion if another batch of banks joins the agreement, Donovan said.

At least $3 billion will go toward refinancing the loans for homeowners who are current on their mortgage payments but who are underwater, and at least $10 billion will be used to reduce mortgage amounts. About $1.5 billion will go toward direct payouts, with about 750,000 homeowners receiving checks between $1,500 and $2,000 for improper foreclosures.

Another $3.5 billion will go directly to states, and about $7 billion is headed for other state homeowner programs.

In addition to the payments and mortgage reductions, the deal promises to reshape longstanding mortgage-lending guidelines. It will make it easier for those at risk of foreclosure to make their payments and keep their homes.

Donovan and Iowa Attorney General Tom Miller, who headed up the investigation, stood by the strength of the deal despite criticism that it doesn’t go far enough.

“This is a strong, creative agreement to help homeowners in significant ways,” Miller said. “This is far more than anybody else has offered in the past in this context, and, I predict, far more than anyone will offer in the future.”

He said he expects the deal to make widespread principal reduction “commonplace.”

Miller said the agreement has “teeth” and provides homeowners with a fast avenue to show how they were wronged by lenders. He said it will ensure that banks provide timely and cost-effective loan modifications for any homeowner who is eligible.

For example, if a homeowner is charged improper fees, he or she can file a claim with a “monitor” who will recoup them without the need for lawsuits, Donovan said.

Congressional Democrats have been pressing for government-controlled Fannie Mae and Freddie Mac to reduce principal loan balances for those underwater on their mortgages but current on their payments.

The settlement applies to private loans only — no government-held loans are included.

Lenders could face millions of dollars in penalties for violating the deal.

“Going forward, the Consumer Bureau will be examining servicers throughout the industry to make sure they are following the law,” Richard Cordray, director of the Consumer Financial Protection Bureau, said in a news release.

“We will also be issuing rules to bring greater fairness and transparency to the mortgage servicing marketplace,” he said. “And where we find unlawful practices, we will not hesitate to use our full authority to protect consumers and hold all servicers accountable.”

On Capitol Hill, House Speaker John Boehner (R-Ohio) told reporters Thursday that “clearly if there was wrongdoing done by some of these mortgage lenders, they should be held accountable.”