Image caption Almost 11 million Americans owe more than their homes are worth

Five of the biggest US banks have agreed to provide $25bn (£16bn) to homeowners to settle claims over improper foreclosure practices.

The deal, struck with the US government and most US states, follows allegations of abusive practices by lenders during the country's housing collapse.

The banks involved are Bank of America, Citigroup, Wells Fargo, JP Morgan Chase and Ally Financial.

President Barack Obama said that homeowners had not been treated fairly.

Settlement terms

"Many companies that handled these foreclosures didn't give people a fighting chance to hold on to their homes," he said.

"In many cases they didn't even verify that these foreclosures were actually legitimate."

He added that the deal would "speed relief to the hardest hit homeowners in some of the most abusive practices of the mortgage industry", saying this was the first step in turning the page on an "era of recklessness".

The settlement follows a year of wrangling and is the biggest struck between the US government and a single industry since 1998.

Analysis This deal is significant because it is likely to help as many as two million American households and it could help to reshape mortgage lending practices. But this by no means solves all of America's housing woes. Critics say this deal may prove more help to the banks than to struggling home-owners and the collapsed housing market. For one, the banks can now put this behind them without a deeper investigation into any wrong-doing. They have already set aside money to pay for the settlement. Meanwhile, borrowers who lost their homes to wrongful foreclosure are unlikely to get them back. And this deal does nothing to help the one in four borrowers who are struggling with negative equity and who have continued to repay their mortgages on time. This is a step in the right direction but there is still much more work to rehabilitate America's housing market.

The deal will provide $3bn of relief for borrowers who are currently on repayments but who cannot refinance their loans because they are larger than the value of their homes.

It will also give $17bn in principal reductions to those who are behind on their payments and at risk of default, and provide about $2,000 in compensation for those whose homes have been foreclosed.

The five banks involved will contribute relative to their share of the market, and other banks could join the programme, increasing the size of the pot.

By settling, the five banks will avoid civil federal lawsuits. However, they are still exposed to the possibility of litigation from states or individuals.

They will also be subject to tighter regulation of foreclosure practices.

All US states except Oklahoma were involved in the agreement, which will last for three years.

Robo-signing scandal

The abuses happened after the US housing bubble burst five years ago.

From 2006, when the American property market peaked, house prices are down by a third and almost 11 million Americans owe more than their homes are worth.

Many companies processing foreclosures - or repossession orders - failed to verify documents.

Some employees signed papers they had not read or used fake signatures to speed up the process, an action dubbed "robo-signing".

Attorney General Eric Holder said the deal represented the "latest step forward in righting the wrongs that led to our nation's housing-market collapse and economic crisis".

Californian borrowers will receive almost half of the $25bn settlement, which does not include mortgages originated by the giant mortgage backers, Fannie Mae and Freddie Mac.

California's Attorney General, Kamala Harris, said she would try to reach a deal with the two lenders.

"I will continue to fight for principal reductions for the approximately 60% of California homeowners whose loans are owned by Fannie Mae and Freddie Mac," she said.