In a first step toward holding banks accountable for their role in the housing bubble that burst, five big banks have agreed to pay $26 billion for their involvement in hasty and incomplete foreclosures.

The landmark settlement, negotiated with the Justice Department and all 50 state attorneys general, includes $17 billion in relief for home owners who were either foreclosed on or whose houses are "under water," worth less than their mortgages.

Although only 2 million Americans are likely to benefit initially, the plan includes incentives for the banks to reduce mortgage balances or refinance loans and to clear their backlog of foreclosed homes, which are a drag on the market.

The deal is the culmination of state probes into mortgage servicing prompted by the "robo-signing" scandal, disclosures in the fall of 2010 that banks had foreclosed on people based on false or incomplete documentation.

The agreement requires loan servicers to attest to the accuracy of their filings and to issue itemized statements to borrowers in default before filing for foreclosure.

Authorities are also free to delve into questionable practices in making loans and the packaging of mortgages into securities the banks sold to investors.

Although the deal includes Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial, the settlement figure could grow to $45 billion if all 14 major mortgage services decide to participate.

President Obama, whose previous efforts to address the mortgage crisis have been found wanting, hailed the deal as beginning "to turn the page on an era of recklessness."
With one in five homeowners "under water" -- negative equity totals $700 billion -- the deal will encourage banks to offer new mortgages while removing the uncertainty of litigation over foreclosure practices.

While helping those who were hurt the most, the settlement should accelerate the recovery of the housing market.

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