(Bloomberg News) Bank of America Corp., JPMorgan Chase & Co. and three other U.S. banks reached a $25 billion settlement with 49 states and the U.S. government to end a probe of abusive foreclosure practices stemming from the collapse of the housing bubble.

The U.S. Justice Department, Department of Housing and Urban Development and state attorneys general today announced the agreement, which was more than 16 months in the making following a move by states to investigate bank foreclosure practices in 2010.

"We need to keep doing everything we can to help homeowners and our economy," President Barack Obama said at the Eisenhower Executive Office Building in Washington, where he was joined by administration officials and attorneys general from some of the states. The "landmark" agreement will "begin to turn the page on an era of recklessness" that led to the housing bubble, he said.

The nation's five largest mortgage servicers -- Bank of America, JPMorgan, Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. -- entered into the settlement. With 49 state attorneys general on board, U.S. Attorney General Eric Holder called the agreement the largest federal-state civil settlement in U.S. history.

Oklahoma entered into a separate agreement worth $18.6 million with the banks and didn't sign the federal settlement, according to a statement from the state's attorney general, Scott Pruitt.

The $25 billion agreement includes $1.5 billion payment to some 750,000 borrowers who lost their homes to foreclosure. About $17 billion will pay for mortgage debt forgiveness, forbearance, short sales and other assistance to homeowners. Servicers will also refinance $3 billion in refinancings to lower homeowners' interest rates.

Bank of America has committed as much as $11.8 billion, including a cash payment of $3.24 billion, according to a government fact sheet. The balance will be applied toward mortgage modifications, principal reductions and other benefits for borrowers. Ally has committed as much as $310 million; Citigroup $2.2 billion; JPMorgan $5.29 billion and Wells Fargo $5.35 billion.

The total figure could grow to $40 billion if the next nine largest mortgage servicers sign on to the agreement, said an administration official who briefed reporters on condition of anonymity in advance of the announcement. In a best-case scenario, if all banks participate fully, the deal could be worth $45 billion to homeowners and people who lost their homes to foreclosure, the official said.

Faulty Documents

The settlement comes more than a year after attorneys general from all 50 states announced an investigation into foreclosure practices following disclosures that banks were using faulty documents to seize homes. A federal website has been set up to provide information on the settlement.

Banks have probably already set aside most of the costs for this settlement, Richard Bove, a bank analyst at Rochdale Securities LLC, said in an interview with Bloomberg Television.

"In terms of the impact on the banks, it's not going to be actually that significant despite the huge amount of money we're talking about," Bove said.

JPMorgan, the largest U.S. bank, won't need to set aside additional costs to cover its share of the agreement. The bank expects that the financial impact on results for this quarter and future periods won't be material, Kristin Lemkau, a spokeswoman for the New York-based bank, said in an e-mail.

"This settlement will help provide additional support for homeowners who need assistance, brings more certainty to the housing market and aligns to our ongoing commitment to help rebuild our neighborhoods and get the housing market back on track," Dan Frahm, a Bank of America spokesman, said in a statement.

The goal was to punish banks responsible for botched foreclosures and repair damaged neighborhoods, said HUD Secretary Shaun Donovan.

"We all recognize you can't undo the pain of the crisis by writing a check," Donovan said. The settlement "forces the banks to clean up their acts."

Borrowers whose loans are owned by banks and haven't been pooled into mortgage bonds will be most likely to benefit from the agreement, said the administration official at the briefing. Borrowers who suffered foreclosures from the start of 2008 through 2011 will be eligible for payment.

Amounts May Vary

The actual amount of restitution to individual borrowers will depend on how many make claims, with the official estimating that each borrower could get between $1,500 and $2,000.

Banks must spend the money within three years or face a fine. The proposal must be approved by a federal judge. Banks will get extra credit for funds distributed in the first 12 months, the official said.

New York Attorney General Eric Schneiderman and California Attorney General Kamala Harris agreed to join the settlement yesterday.

"With California and New York signing on, it's a huge deal," said Kurt Eggert, a professor at Chapman University School of Law in California who has been following the talks. "California and New York were the biggest critics of this deal, so if they sign on, that's a sign that this is a real deal."

In a statement, Harris said her state, one of the hardest hit by foreclosures, would get $18 billion under the deal.

The settlement doesn't release any criminal liability or grant any criminal immunity, release any private claims by individuals or any class-action claims, or release claims related to the packaging of mortgage loans into securities, according to the website outlining the agreement.

The resolution also establishes a monitor, Joseph A. Smith Jr., North Carolina's top banking regulator, to track compliance with the terms of the agreement.

The 50-state investigation, announced Oct. 13, 2010, came after New York-based JPMorgan, the largest U.S. bank by assets, and Ally Financial's GMAC mortgage unit said they would stop repossessions in 23 states where courts supervise home seizures, and Charlotte, North Carolina-based Bank of America froze foreclosures nationwide.

Ally, based in Detroit, was first to freeze evictions in September 2010, after depositions in lawsuits challenging foreclosures surfaced showing that employees signed affidavits containing information they didn't personally know was true. In December 2009, a GMAC employee said in a deposition in a foreclosure case filed in West Palm Beach, Florida, that his team of 13 people signed about 10,000 documents a month without verifying their accuracy.

The attorneys general began negotiating first with the five largest servicers because they held almost 60 percent of home loans, Miller has said.

Bank of America, JPMorgan, New York-based Citigroup, San Francisco-based Wells Fargo and other mortgage servicers have also been required by the Office of the Comptroller of the Currency to improve their foreclosure procedures. The OCC in April 2011 announced enforcement actions against the companies for "unsafe and unsound" practices related to loan servicing and foreclosures.

"They fueled the downward spiral of our economy and of communities nationwide," Holder said today of bank practices. "They eroded faith in our financial system. And they punished American taxpayers who have had to foot the bill for foreclosures that could have been avoided."