* Talks expected to last all week
* Banks propose $5 billion settlement figure - source
* Two sides "still far apart" -- Connecticut AG
(Changes sourcing on $5 billion proposal)
By Dave Clarke
WASHINGTON, May 11 U.S. state attorneys general
are pressing five large banks to reduce loan balances for
troubled borrowers as part of a settlement over mortgage
servicers' foreclosure practices.
The two sides -- which include Bank of America Corp
(BAC.N), JP Morgan Chase & Co (JPM.N), Citigroup Inc (C.N),
Wells Fargo & Co (WFC.N) and Ally Financial -- began meeting on
Tuesday and the talks are expected to last most of the week.
"We are still far apart on some issues," Connecticut
Attorney General George Jepsen said on Wednesday.
The negotiations have been going on for months and to kick
off this round the states and their partner federal agencies,
which include the departments of Justice and Housing and Urban
Development, revised an earlier 27-page settlement proposal
sent to banks in March.
The revised termsheet includes a proposal for how states
and the federal government would use whatever penalty banks
agree to pay, as well as earlier proposals for overhauling how
servicers deal with troubled homeowners.
A spokesman for Iowa Attorney General Tom Miller, leader of
the states' investigation, said the proposal includes using the
funds for reducing the balance of troubled homeowners' loans,
but the funds would also be used for other programs.
"Principal reduction is still very much on the table, but
it would not be accurate to characterize it as a principal
reduction fund," said Geoff Greenwood, Miller's spokesman.
"That would just be one component."
Greenwood said the funds could go toward such things as
mediation programs and state hotlines that borrowers could call
when they need help.
How much banks should pay to settle with the states and
federal agencies remains the key issue.
The agencies involved in the talks earlier this year had
discussed making the banks pay in the range of $20 billion as
part of the settlement. The banks floated the idea this week of
settling for $5 billion, according to a source familiar with
Greenwood said the states and federal agencies involved did
not propose a settlement amount going into negotiations this
week. Jepsen said the states are "hopeful" about reaching an
Federal regulators and state attorneys general have been
investigating bank mortgage practices that came to light last
year, including the use of "robo-signers" to sign hundreds of
unread foreclosure documents a day.
Last month, 14 mortgage servicers, including those involved
in talks with the states, separately reached a settlement with
federal banking regulators.
That deal requires them to overhaul their mortgage
servicing practice, compensate borrowers who were wrongly
foreclosed upon and undergo an independent review of their 2009
and 2010 foreclosures. [ID:nN13259474]
Money penalties have still to be decided.
Under this agreement banks have to come up with a plan by
next month on how they will overhaul their servicing
It is possible that an agreement with the states could be
coordinated and incorporated into these plans.
The banking regulators involved in last month's settlement
are the Office of the Comptroller of the Currency, the Federal
Reserve and the Office of Thrift Supervision.
(Additional reporting by Dan Levine in San Francisco; editing
by Richard Chang and Andre Grenon)