Excerpts from the latimes.com:

California walked away with the biggest chunk of this week’s landmark foreclosure settlement partly because of the state’s size but also because of Bank of America’s desire to escape the legacy of its Countrywide problems.

The nation’s three largest mortgage servicers — Bank of America, JPMorgan Chase and Wells Fargo & Co. — committed to provide California $12 billion in principal write-downs, including through short sales, over the next three years, the single largest such commitment to come out of the negotiations. About 250,000 Californians are covered under that part of the deal, struck between five big mortgage lenders, states and the federal government.

Taking into account a complex series of credits designed to encourage the banks — which also included Ally Financial and Citibank — to make payments to homeowners, California’s share of the settlement could climb to as much as $18 billion. That aid would go to an estimated 460,000-plus borrowers, many in areas of the state hit hardest by the housing bust, according to the state attorney general’s office.

“This outcome is the result of an insistence that California receive a fair deal commensurate with the harm done here,” Atty. Gen. Kamala D. Harris said Thursday in announcing the settlement.

“California gets an extraordinary amount of it,” said Iowa Atty. Gen. Tom Miller, who led the negotiations for the state attorneys general. “That’s one of the things that amazed us as we went through this — how much problem there was in California.”

California’s participation in the settlement, a prospect that was in jeopardy until the last minute, also helped increase the size of the deal, including for other states.

“They are by far the most important mortgage lending state in the country, and as a result are the most important foreclosure state,” said Guy Cecala, publisher of Inside Mortgage Finance. “It is crucial to have them as part of a settlement.

“These banks badly need to get back in the business of processing foreclosures,” Cecala said, “and it is a huge deal if you don’t have the California attorney general breathing down your throat.”

Key to Harris was getting a significant amount of principal reduction for borrowers. Under the terms of the deal, banks can write principal down to the current value of the loan, or so the monthly mortgage payments make up only 31% of a borrower’s income, according to the person familiar with the deal.

If the banks don’t fulfill the $12-billion guarantee, they will have to make cash payments of up to $800 million directly to the state, a provision that is enforceable in California court, instead of federal court in Washington, where the rest of the deal is covered.

Incentives will direct aid to areas hardest hit by the foreclosure crisis, a “Stockton provision” that Harris sought after a visit this year to that foreclosure-ravaged city, negotiators said. Those areas are to receive relief within the first year.

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