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National Mortgage Settlement: California, New York Reveal Their Cut [UPDATE]

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The $25 billion settlement with five of the nation's largest banks over charges of mortgage fraud is the largest multi-state agreement since the nationwide tobacco settlement.
The $25 billion settlement with five of the nation's largest banks over charges of mortgage fraud is the largest multi-state agreement since the nationwide tobacco settlement.

The five states that most actively resisted a settlement with banks over charges of widespread mortgage fraud announced their cut of the nationwide deal on Thursday. California, New York, Delaware Nevada and Massachusetts all said they would receive relatively large cash awards.

All together, the $25 billion settlement with five of the nation's largest banks is the largest multi-state agreement since the nationwide tobacco settlements in 1998. Forty-nine states are to receive a piece of a $5 billion cash payout as part of the deal. The money would be used for homeowner assistance. Only one state, Oklahoma, did not agree to the settlement.

California's and New York's participation had widely been seen as necessary to completing the deal, which settles allegations that five of the nation's biggest banks forged documents and wrongfully foreclosed on homeowners in what came to be known as the "robo-signing" scandal.

On Thursday, California's outspoken Attorney General Kamala Harris said that her state could potentially receive as much as $12 billion in a special side deal that was critical in closing the entire package. Harris said on Thursday afternoon that she will appoint a dedicated monitor to ensure "the deal gets done." She added that this person "will be someone respected who understands the system well enough to get it done, which is the difference between a deal being real and a grand gesture."

"California families will finally see substantial relief after experiencing so much pain from the mortgage crisis," Harris said. "This outcome is the result of an insistence that California receive a fair deal commensurate with the harm done here."

California is one of the states hardest hit by the housing crisis, with one of the nation's highest foreclosure rates and more than 2 million borrowers owing more than the value of their home. Harris had consistently resisted joining the deal over fears it would do too little for struggling homeowners. Negotiators were so determined to secure her state's participation that they agreed to increase the value of the total settlement by $6 billion, from $19 billion to more than $25 billion, to secure her support.

Additionally, negotiators agreed to a side deal with Harris that guarantees California residents a minimum of $12 billion in homeowner assistance. California also secured "enforceable guarantees" to ensure that the banks deliver on their promised help. Under the side deal, the state can impose fines as large as $800 million against the banks if they fail to keep their commitment, and can also go after the banks in state court, a stark contrast to the larger settlement agreement which is only enforceable in federal courts.

Illinois will obtain $1 billion, Attorney General Lisa Madigan said, according to the Associated Press.

Nevada's slice of the deal offers $1.3 billion in homeowner assistance, proportionate to that of California's, according to a statement from Nevada Attorney General Catherine Cortez Masto released Thursday.

What's different in Nevada, which has one of the nation's highest foreclosure rates, is that Bank of America is responsible for providing $750 million for principal reduction and other assistance. Bank of America also agreed to pay the state $30 million for consumer protection efforts and to suspend foreclosures on Nevada residents who received a mortgage loan from, Countrywide Financial, which B of A bought in 2008.

Delaware on Thursday announced it would get a $45 million cash payment.

New York will receive $136 million, which it claims is the fourth largest cash payout to any state and will fund various types of homeowner assistance, according to representatives from that state's attorney general's office. Massachusetts' cut is $318 million.

New York intends to use its payout to fund "legal aid, homeowner assistance and advocacy organizations to help distressed individuals facing foreclosure or servicer abuse," according to the state.

Other states have yet to announce the amount they'll receive and their plans.

The settlement had been in the works since October 2010, when attorneys general from all 50 states banded together with the federal government to punish five large financial institutions -- Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial -- for mortgage-related misconduct, including robo-signing and failing to provide mortgage modifications to eligible homeowners.

In addition to the monetary penalty, the deal is expected to reform the mortgage servicing industry and require banks to offer relief to homeowners in the form of modifications, principal write-downs and refinancing, among other options.

UPDATE: 3 p.m. --

This story has been updated to reflect Illinois and Nevada's share of the settlement.

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