The foreclosure deal

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Government officials are on the verge of an agreement worth as much as $26 billion with five major U.S. banks.

The deal would cap a yearlong push to settle federal and state investigations of alleged foreclosure abuses by lenders and would represent the largest government-industry settlement since a multi-state deal with the tobacco industry in 1998.

The agreement covers five banks: Ally Financial Inc. [formerly GMAC], Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co. Together, the five handle payments on 55 percent of all outstanding home loans, or about 27 million mortgages, according to Inside Mortgage Finance.

The $26 billion deal over foreclosures will get state and federal authorities a little more than half way there, but leave 45 percent of the mortgage business untouched, even after more than a year of negotiating a settlement.

Regardless, it remains to be seen whether or not prosecutors will chase after the remaining companies in the industry that was involved in taking short cuts by running paperwork through foreclosure mills. Those included law firms that were hired to tear through mounting numbers of collapsed mortgages, putting emphasis on speed and not enough meeting minimal legal standards, such as reading documents before they were signed.

The deal worked out by federal authorities and state attorneys general includes $5 billion in penalties, $1.5 billion of which will go to former mortgage holders who were pushed into foreclosure between September 2008 and December 2011.

The Journal estimates that former mortgage holders could receive $1,500 to $2,000, depending on how many file a claim. That is roughly the size of a bonus check that workers at Chrysler will receive this year.

The deal then turns its attention to current homeowners, assigning $20 billion to be used to refinance loans at lower interest rates to reduce monthly payments.

It seems doubtful, however, that the settlement will do anything for a stubbornly depressed housing market that has defied any of the Obama administration's efforts to resuscitate.

Still, the settlement is large enough to mimic a modest stimulus package.

It will give spending money to thousands of homeowners now displaced from their homes, so those funds are not apt to go straight back to the banks in the form of a mortgage payment. Instead, it will go toward groceries and other expenses.

The S&P/Case-Shiller 10-city home price index fell to its lowest level since July 2003 in November. The 20-city index in the same month dropped to a level unseen since March 2003.

"It is frankly a headline victory for both banks and attorneys general with a modest impact on the housing market," said Joshua Rosner, managing director of investment firm Graham Fisher & Co.

Respectfully submitted, this is not the case unless modest means negligible.

The solutions to home ownership is demographics and jobs. Simply put, there are too many homes available given the pool of qualified buyers out there. Just as the administration might have used the Troubled Asset Relief Program as a means of mandating increased lending, this deal also does not include any mandate to increase lending.

Good thing, too. To date such efforts have amounted to pouring money down the drain. They have not helped a bit. The housing market needs a carrot -- jobs -- not a stick.

In international markets Thursday, the Nikkei 225 index in Japan lost 0.15 percent, while the Shanghai composite index in China was flat, rising 0.09 percent. The Hang Seng index in Hong Kong gave up 0.04 percent, while the Sensex in India rose 0.7 percent.

The S&P/ASX 200 in Australia shed 0.18 percent.

In midday trading in Europe, the FTSE 100 index in Britain gained 0.56 percent, while the DAX 30 in Germany climbed 0.94 percent. The CAC 40 in France rose 0.9 percent, while the Stoxx Europe 600 rose 0.56 percent.