A landmark settlement was reached today between the federal government, attorneys general from California and 48 other states, and the nation's five largest mortgage servicers. The $25 billion settlement is meant to hold the servicers accountable for foreclosure abuses as well as aid up to 2 million homeowners who have been affected by the housing market's collapse.

Foreclosures were slowed in 2011 while the lenders negotiated for more than a year with the attorneys general over accusations of shoddy paperwork and other fraudulent activities that have been used to repossess homes.

The settlement will funnel $17 billion in relief to current homeowners, to cushion some from foreclosure. The majority of this will be done through reductions in the principal owed on mortgages.

The agreement also includes $5 billion for California and the rest of the states to fund foreclosure prevention programs. Lenders will also refinance $3 billion to lower homeowners' interest rates and pay around $1.5 billion to homeowners that were affected by botched foreclosures from 2008 to 2011.

It has been estimated that hundreds of thousands of homeowners will receive money as part of that settlement, but most checks will only be between be $1,500 and $2,000. However, the total settlement could swell to $45 million if the next nine largest mortgage companies agree to sign on. The settlement should directly benefit hundreds of thousands of Californians, according to a news report. Californians could receive up to $18 billion from the settlement.

While the settlement sounds like good news, it is important to note that, according to RealtyTrac, about 11 million U.S. homeowners currently owe more on their mortgages than their house is actually worth.

And, though the agreement is predicted to make the housing market's recovery more likely, in the meantime banks are poised to resume home seizures, according to news reports.

This is because a backlog developed while lenders were in negotiations throughout the year, so foreclosures that could have happened last year will come through this year.

Source: Bloomberg, "Foreclosure Deal to Spur U.S. Home Seizures," Prashant Gopal and John Gittelsohn, Feb. 9, 2012

Source: Los Angeles Times, "Officials say $25-billion foreclosure deal will help heal market," Jim Puzzanghera, Feb. 9, 2012