The US government and top mortgage lenders reached a landmark $25 billion deal Thursday to help struggling homeowners get back on their feet and untether the moribund housing market.

Five of the largest US banks and 49 of 50 states agreed to help homeowners reduce the amount they owe on their mortgages and provide compensation for unfair home repossessions.

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

The agreement represents a glimmer of hope for millions of Americans who have watched the value of their homes slump while the cost of their mortgages has remained at boom-era highs.

It also offers compensation for those who lost their homes despite questions about banks loosing paperwork and signing documents without due process.

For Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial, the deal begins to close the curtain on a fraught period of legal uncertainty marked by multiple law suits and government probes.

But Holder was quick to stress the deal does not give them immunity.

"It does not prevent state and federal authorities from pursuing criminal enforcement actions," he said.

The deal could also be a boon for the broader economy.

The housing bubble was at the center of the 2008 financial crash, the worst in 80 years.

In the boom years Americans borrowed beyond their means and Wall Street overdosed on exotic mortgage-based derivatives.

"A final agreement can play an important role stabilizing and providing certainty and confidence to the housing and mortgage markets," said David Stevens head of the Mortgage Bankers Association.

"With all the rumors and speculation surrounding these negotiations behind us, it is now imperative that policymakers, lenders, servicers and other stakeholders work together on policies and initiatives that will allow us to get the housing market on the road to recovery."

But the deal does not include mortgages originated by Fannie Mae and Freddie Mac, which make up the bulk of home loans in the United States.

California Attorney General Kamala Harris said she would try to forge a deal with the two government-backed lenders.

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

Bank shares rose slightly on the news: JPMorgan Chase gained 0.2 percent; Citigroup 0.2 percent, Wells Fargo 0.4 percent and 1.2 percent for Bank of America.