Foreclosure deal with U.S. banks elusive

WASHINGTON/CHARLOTTE, North Carolina (Reuters) - Large U.S. banks are mired in negotiations with state attorneys general over mortgage servicing abuses, as bank regulators prepare their own enforcement actions against the banks.

On Wednesday, banks including Bank of America and JPMorgan and a group of attorneys general met at the U.S. Justice Department to kick off what could be a long and contentious negotiation.

"It was a breaking of the ice," said Iowa Attorney General Tom Miller who heads an executive committee comprised of 13 state AGs.

The Justice Department, the Department of Housing and Urban Development, the Federal Trade Commission, and Treasury officials were also at the meeting, but the leading U.S. bank regulators were not.

Miller described the meeting as a good start but said the authorities and banks still have a long way to go because there are many differences.

However, U.S. bank regulators including the Office of the Comptroller of the Currency and the Federal Reserve could hit banks in the next couple weeks with their own enforcement actions over the banks' foreclosure process abuses, sources familiar with the matter said on Wednesday.

The enforcement actions would make the banks adopt better mortgage servicing standards and offer restitution to borrowers who were wrongly foreclosed upon, said one of the sources who asked not to be named because the negotiations are ongoing.

The source said the banking regulators have not reached a decision on financial penalties.

A group of 50 state attorneys general and about a dozen federal agencies are probing bank mortgage practices that came to light last year, including the use of "robo-signers" to sign hundreds of unread foreclosure documents a day.

All of the agencies involved in the probe had originally planned to announce deals with banks at the same time but that now seems highly unlikely.

PROPOSAL, COUNTER-PROPOSAL

On the agenda for Wednesday's meeting was the outline of a proposed settlement that state attorneys general leading the probe sent banks on March 3.

That proposal was endorsed by some federal agencies, including the Justice Department, the Housing and Urban Development Department and Treasury staff setting up the Consumer Financial Protection Bureau.

Notably, the Office of the Comptroller of the Currency and the Federal Reserve did not endorse the proposed settlement.

The five mortgage servicers represented at the meeting brought a counteroffer they all agree on, according to a source familiar with the negotiations. Those servicers are Bank of America, JPMorgan, Citigroup, Wells Fargo and Ally Financial.

The states' document included a proposal for servicers to reduce the principal on a loan if it would help keep a borrower in a house and make the mortgage more valuable to investors than it would be in a foreclosure.

That proposal was not well received by banks.

The banks are arguing, according to the source, that they have already made corrections to their servicing and foreclosure practices. If they have to abandon those in favor of new standards, it will take longer to implement needed changes, the source said.

ADVISORY ROLE?

Also on Wednesday, House Republicans asked Elizabeth Warren to clarify her role in the mortgage servicing negotiations.

Warren is leading the Obama administration's efforts to set up the new Consumer Financial Protection Bureau, which opens its doors on July 21.

She has said her agency has played a limited role in the probe, and is there to advise the other authorities.

Sources have said the consumer agency is pushing harder than some bank regulators for a big monetary settlement and principal writedowns on mortgages.

Republicans posted on the House Financial Services Committee website a February 14 document that the CFPB prepared for state attorneys general, laying out settlement alternatives with the banks.

Republicans charged the document shows Warren and her staff have had more of a role in negotiations than she has said.

(Reporting by Dave Clarke in Washington and Joe Rauch in Charlotte with additional reporting by Kim Dixon and Jeremy Pelofsky in Washington, Editing by Tim Dobbyn)