Holdout States Lured Back into Mortgage Deal; Announcement Expected

(Reuters) - California and New York, two key holdout states for a multi-state mortgage settlement, are expected to join the deal, smoothing the way for an announcement expected on Thursday, according to a person familiar with the matter.

Florida, with its large distressed housing market, was also close to joining the settlement that resolves civil government lawsuits over faulty foreclosures and servicing misconduct by top U.S. banks, a separate person familiar with the deal said on Wednesday.

More than 40 states said they would join the estimated $25 billion settlement in advance of a February 6 deadline, but several states continued negotiations to address concerns specific to their state.

The value of the state and federal settlement would have dropped significantly if California and Florida decided not to join.

The Obama administration has estimated that up to 1 million homeowners could benefit from the deal.

The core group of banks involved in settlement talks are Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup Inc and Ally Financial Inc.

A handful of other states that had dragged their feet in signing on, including Delaware and Massachusetts, are expected to also participate in the settlement, the first person familiar with the matter said.

Dissident states and several activist groups had criticized the earlier terms of the proposed deal as too lenient toward the banks.

The proposed settlement distributed last month to state officials included rough estimates on the benefits each state's homeowners might receive, but did not include guaranteed numbers.

California received a guarantee its struggling homeowners would receive around $8 billion in relief, two people familiar with the negotiations said. The state itself would receive around $430 million for foreclosure prevention and other housing efforts.

Representatives for the attorneys general in New York, Delaware, Massachusetts and California declined to comment.

A spokeswoman for Florida Attorney General Pam Bondi said late Wednesday that Bondi is actively involved in the settlement discussions.

While Attorney General Bondi has not yet joined the settlement, she is hopeful that a resolution will be reached soon, spokeswoman Jennifer Meale said.

The state will receive around $300 million, and its attorney general is working to receive a guarantee similar to the one California received, the two people familiar with the matter said.

(Reporting By Aruna Viswanatha in Washington, D.C., Karen Freifeld in New York, and Rick Rothacker in Charlotte, N.C.; Additional reporting by Kevin Gray; Editing by Tim Dobbyn)