"It is one small step in the direction of justice," said Ed Leamer, director of the UCLA Anderson Forecast. "It is an ounce of justice, but we need a pound of justice."
Iowa Atty. Gen. 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% of all mortgages serviced 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."
Times staff writer Tiffany Hsu contributed to this report.