State and federal officials have inched closer to finalizing a $26 billion settlement with five top banks in efforts to repair damage done by flagrant mortgage practices, assist American homeowners still struggling to avoid foreclosure, and slow the downward-trending housing market.  The final decision on the plan could come as early as Thursday.  Negotiations were ongoing Wednesday night.

Under the agreement, banks would be incentivized and granted “credit” for helping distressed homeowners.  The Washington Post reports that “the pending deal would force the lenders to revamp how they interact with troubled homeowners and would bar them from trying to foreclose on borrowers while simultaneously negotiating mortgage modifications”  Additional plans would be furnished to encourage loan refinance and foreclosure avoidance options.

State attorneys general continue to debate the details of the agreement, which would include Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.  New York and California have withheld final decisions, but according to the New York Times, both states plan to sign on with the deal, along with 40 other states already committed to talks.  

California Attorney General Kamala Harris earlier called the agreement “insufficient,” saying it would not do enough aid her state’s affected homeowners and would look the other way at banks’ transgressions (The Washington Post).  The settlement, which some say is not enough to help the many borrowers caught in underwater mortgages and bank red tape, is still the most expansive attempt to distribute assistance.

  The New York Times reports that over the next three years, roughly one million homeowners are expected to have their mortgage debt reduced by lenders or be able to refinance their homes at lower rates.  “Another 750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011 will receive checks for about $2,000.”   

The settlement money is already tentatively divided up, with $20 billion set aside for homeowners who would benefit from some form of loan modification, and $5 billion reserved in a state and federal account for government programs and for borrowers affected by fraudulent bank practices (Los Angeles Times).  A third portion of the money is allotted for cash payments to those who lost their homes, and to secure the possibility of future mortgage fraud investigations by officials (New York Times).

Federal officials hope the final figure of the negotiations reaches $39 billion in value for homeowners.  However, mortgages owned by government agencies Fannie Mae and Freddie Mac --holders of approximately half of American mortgages -- are not included in the settlement, according to the New York Times report.