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“It will help build a stronger housing market while keeping more people in their homes,” said Michael Calhoun, president of the Center for Responsible Lending. “But it was never intended or able to provide a comprehensive remedy” to the many problems plaguing the housing market.

Millions of U.S. homeowners hold loans that exceed the value of their homes - an estimated $700 billion in negative equity collectively. So the deal’s $25 billion in relief will make only a small dent.

But requiring the big banks to provide mortgage relief “could become a model for the rest of the market, especially Fannie Mae and Freddie Mac, which control 50 percent of the market,” said Mr. Calhoun.

Liberal groups, who held up the settlement for weeks as they pushed for more concessions from the banks, complained that it does not go far enough. They urged the Obama administration and state attorneys generals to pursue criminal cases against the banks.

Criminal charges still possible

The settlement does not prohibit criminal actions in the future, but bars any further civil enforcement related to foreclosure-processing problems. Officials in California, which has by far the most mortgages in default and foreclosure nationwide, promised to be aggressive in pursuing further remedies.

Previous Obama administration efforts to ease the housing crisis have produced few tangible results. A plan he launched two years ago failed to meet its stated goal of helping as many as 3 million to 4 million struggling homeowners avoid foreclosure by modifying loans because falling home prices prevented many from being able to refinance, among other difficulties.

Last week, Mr. Obama unveiled another plan that would cost up to $10 billion to allow homeowners who owe more than their homes are worth to refinance their mortgages through the Federal Housing Administration.

The program would be funded through a new tax on banks and would benefit nearly 3 million homeowners.

Patrice Hill contributed to this report.