LEAD: US reaches 25-billion-dollar housing settlement

Feb 9, 2012, 15:52 GMT

Washington - The United States government and five major banks on Thursday reached a 25-billion-dollar settlement over mismanagement of foreclosure and mortgage practices.

The Justice Department and 49 states made the agreement with the country's five largest mortgage service providers, Bank of America Corporation, JPMorgan Chase & Company, Wells Fargo & Company and Ally Financial Inc.

It is the largest ever civil settlement reached by the government and the states and comes in the wake of disclosures that banks did not follow proper protocol when foreclosing on homes after the collapse of the housing bubble.

The deal is designed to help people affected by the financial crisis, with 20 billion dollars going toward financial relief to borrowers.

Some 10 billion dollars will be used to redue the principal on loans for borrowers who are at risk of losing their homes to foreclosure and another 3 billion will help those who are current on their payments but owe more than their homes are worth.