The landmark $25 billion settlement between major banks and state and federal governments is aimed at doing more than just helping people who lost their homes through improper foreclosures.
It's an attempt to fix the biggest weak spot in the nation's economy. Although analysts are unsure the cure will take, the outcome could help determine whether voters give President Barack Obama a second turn in office next fall.
By most measures, the economy is improving: Unemployment is down, consumer spending is up, and financial markets have regained the ground they lost in the 2008-09 financial crisis.
The housing market is the last holdout, with home prices nationwide down nearly 34 percent from their peak in 2006, according to real estate data firm CoreLogic. The average home is now worth what it was in 2003.
Although Thursday's settlement originated more than a year ago as an effort to discipline lenders for improper foreclosures, it has evolved into a housing relief package.
Most of the money _ $17 billion _ is earmarked for people who are struggling to make their payments, chiefly by reducing the amount of principal on their mortgages. An additional $3 billion will be spent by the banks to refinance mortgages of homeowners who are current on their payments but owe more than their homes are worth.
"This isn't just about punishing banks for their irresponsible behavior," said Housing and Urban Development Secretary Shaun Donovan. "It's also about requiring them to help the people they harmed by funding efforts to help homeowners stay in their homes."
For Obama, whose administration pushed hard for a deal, an upturn in the housing market would be a boost to his re-election hopes this fall. The banks receive incentives to provide relief within 12 months.
"This isn't just good for these families," Obama said of struggling homeowners. "It's good for their neighborhoods, it's good for their communities and it's good for our economy."
Only Oklahoma Attorney General Scott Pruitt, a Republican who reached a separate, more narrow settlement, did not join the broader deal.
Julio Zapata, 44, of Diamond Bar, Calif., is one of the struggling homeowners the agreement is supposed to help. But Zapata, a medical equipment technician, is skeptical that the banks will live up to their promises.
Zapata said he had trouble making his payments, and after a two-year battle, he recently persuaded his lender to alter the terms of his loan. He won a small reduction in payments but is still not sure he can keep the house without another modification.
"It was a horrific process _ draining, frustrating," he said. "It just took a lot out of me. And at the end of the tunnel, I'm still not in a better position than before."
Housing experts say the settlement probably will lead the banks to pick up the pace of foreclosures, which they have kept in low gear because of the pending settlement.
That will produce pain for homeowners and could push prices down further _ at least temporarily. But clearing up the foreclosure backlog created by federal and state investigations should help heal the real estate market.
"The servicers will start working through those big backlogs of foreclosed homes ... and that will put downward pressure on home prices," said Celia Chen, a housing economist at Moody's Analytics.
Stuart Gabriel, director of UCLA's Ziman Center for Real Estate, said the housing markets in the state's hardest-hit areas largely have hit bottom already.
"This will have some modest effect on the healing of those markets," he said.
California's huge share of the settlement _ approximately 45 percent, the largest share of any state _ means the deal might help keep home prices from falling more in the state than in others, Chen said.
"This issue has never been about anything other than allowing homeowners, hardworking people, to be able to stay in their homes," California Attorney General Kamala D. Harris said at a Los Angeles news conference. "And we were very determined to make sure that California, the hardest hit in the country, would receive its fair share."
Nationally, just $1.5 billion from the settlement will go directly to people who lost their homes in foreclosure proceedings from 2008 through 2011 that included botched paperwork and other servicing problems that triggered federal and state investigations.
Those people _ an estimated 750,000 _ would receive checks of $1,500 to $2,000.
The deal also includes incentives to lenders to provide assistance to homeowners within the next year, when it could be the most help to a housing market yet to hit bottom.
Some argue that the settlement should have done more to help people who were victims of wrongful foreclosures.
"It is one small step in the direction of justice," said Ed Leamer, director of the University of California-Los Angeles Anderson Forecast. "It is an ounce of justice, but we need a pound of justice."
Iowa Attorney General Tom Miller, who led the negotiations, defended the relatively small payments going to people who lost their homes in foreclosure.
He said it is just one part of the settlement and is more than most of those homeowners could have expected to receive on their own.
Miller also said he expected that the large amount of write-downs on principal, which will take place as part of the settlement, will lead the practice _ resisted so far by servicers _ to become commonplace as banks and investors see that it is not the money-loser they have feared.
The foreclosure deal was reached with the nations' five largest servicers _ Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. _ which account for about 55 percent of all mortgagesserviced in the United States.
The banks issued statements saying they were glad to have the settlement process behind them; analysts said all had set aside sufficient funds to cover the agreement.
Government officials hope to expand it to nine other servicers in coming weeks. If all signed on, the deal would increase to $30 billion.
The settlement sets new national standards for mortgage servicing, to be overseen by an independent monitor, that officials said would end the frustrating runarounds endured by homeowners trying to get their mortgages modified or make other changes to avoid foreclosure.
But the deal goes beyond those problems to try to help people whose home values plunged because of the collapse of the housing market.
In California, $12 billion in assistance would go to underwater homeowners in the hardest-hit regions, such as the Inland Empire and Central Valley, Harris said.
Harris was one of the last attorneys general to sign on, using the leverage of the nation's largest state to increase the size of the settlement.
Kurt Eggert, a law professor at Chapman University who has studied predatory lending, said California was key to the settlement, which went beyond the robo-signing problems that hit harder in states with judicial foreclosure proceedings. In California, foreclosures happen largely without court oversight.
Guy Cecala, publisher of Inside Mortgage Finance, said California probably got the best deal of any state.
"But it is still not a huge amount," he said. Cecala agreed that the main effect of the settlement will be to speed up the stalled foreclosure process.
"It will remove the cloud that has hung over servicers, so it should speed up and effectively pave the way to getting the housing market to more of a normal situation," he said. "That will clearly be a benefit for borrowers and consumers."