Last week, we discussed Obama's Home Refinancing Plan, whether states would sign onto the plan, and what it would mean for individuals considering bankruptcy. This week, the federal and state government announced that they have come to a $26 billion foreclosure settlement with five lenders - Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.

Forty-nine attorneys general signed onto the deal (all except for the Oklahoma AG), as well as the U.S. Department of Housing and Urban Development (HUD) and the Justice Department.

The settlement includes $1.5 million for homeowners who faced home foreclosure between 2008 and 2011. These homeowners will receive $2,000 for improper foreclosure but may still sue their banks to recover damages.

Perhaps more importantly, the settlement could stop future home foreclosures. The settlement will benefit underwater homeowners, or homeowners who owe more on their principal than their houses are worth. At least $17 billion will go to reduce principals faced by underwater homeowners. The money could potentially help one million homeowners reduce their principal by $17,000. Others will be able to refinance their mortgage loans to reduce their rates.

California's position on the mortgage deal

California Attorney General Kamala Harris said that California might receive up to $18 billion of the settlement money. While she claimed it was a victory, she also said, "There is a lot of work yet to be done." She has appointed a California monitor to ensure that the banks keep to the terms of their agreements.

Harris had originally refused to sign the settlement because it prevents states from bringing civil charges for wrongful foreclosure. The relief offered to California was then $4 billion. She has agreed to the greater relief now offered.

California was one of the states hardest hit by the mortgage crisis. In California, nearly two million homes are currently underwater.

Source: CNN Money, "Mortgage deal could bring billions in relief," Chris Isidore, Jennifer Liberto, Feb. 9, 2012.