* Claims over origination errors had been sticking
* Refinancings proposed in exchange, pushing up price tag
* Deal could come by the end of the month
By Aruna Viswanatha
WASHINGTON, Oct 18 Talks between U.S. states and
top banks over mortgage abuses are nearing agreement on
resolving a major sticking point that has bogged down settlement
negotiations for more than a year.
A deal could be reached by the end of the month, according
to three people familiar with the talks.
Under the proposed terms of the settlement -- which could
total $25 billion -- banks would get a broader relief from
potential state civil lawsuits in exchange for refinancing
underwater loans, those mortgages where borrowers owe more than
their homes are worth, the sources said.
The deal could provide some relief to the battered U.S.
housing market and clear up some uncertainty about banks' legal
exposure that has been a drag on their shares.
Banks have been holding out on a multi-billion-dollar
settlement because they wanted broader legal protection than
state attorneys general were prepared to offer.
Originally, the states were only considering legal
protection for shortcuts taken during mortgage servicing and
foreclosures, including the so-called "robo-signing" of
documents to evict people behind on their mortgages.
In recent days, the state attorneys general agreed to
release major banks from claims that they made legal errors when
first originating the loans, such as approving loans for
borrowers without verifying any income, according to two people
familiar with the talks.
In exchange, banks would agree to refinance mortgages for
borrowers who are current on their payments but owe more than
their homes are currently worth, the sources said.
The deal is being negotiated between the states and several
federal agencies on one side, and Bank of America Corp ,
JPMorgan Chase & Co , Wells Fargo , Citigroup
, and Ally Financial on the other.
The states are being careful to not characterize any
potential settlement as too generous to the banks.
"While I can't discuss the details of our negotiations, I
will say that we are negotiating a limited -- not a broad --
civil liability release. We are discussing additional ways to
help homeowners while still holding the banks accountable," said
Geoff Greenwood, spokesman for Iowa Attorney General Tom Miller
who is helping lead the settlement negotiations.
It also could bolster the Obama administration's plan to
further extend help to underwater borrowers whose loans are
owned by Fannie Mae or Freddie Mac to
refinance their mortgages.
Treasury Secretary Timothy Geithner said on Tuesday that he
hopes the government will reveal the details of that plan in
The deal with the states, which would address bank-owned
underwater mortgages, could complement the administration's
Representatives of Citigroup, JPMorgan and Ally declined to
comment. Bank of America Chief Financial Officer Bruce Thompson
said on an earnings call on Tuesday that there continues to be a
lot of settlement discussions but they did not have much new to
report. Wells Fargo CEO John Stumpf on Monday declined to
comment on the talks.
MILLIONS OF UNDERWATER MORTGAGES
The refinancing plan under consideration by the banks would
be in addition to the outlines of the deal agreed to date,
pushing the total settlement tab closer to $25 billion from a
previous estimate of about $20 billion.
About 70 or 80 percent of that previous amount had been
slated to settle federal claims and would be used by the banks
to help troubled borrowers with a menu of options to include
principal writedowns, cash for transition to rental housing and
other forms of assistance.
It is unclear exactly how many homeowners could qualify for
refinancing under the new element of the proposed deal.
Around 20 percent of all mortgages are bank-owned. Those
loans which are underwater are generally not currently eligible
An estimated 22.5 percent of all residential properties with
a mortgage -- around 10.9 million of them -- are underwater,
according to data from CoreLogic.
The success of the talks, which hit the one-year mark
earlier this month, has been in question in recent months.
California Attorney General Kamala Harris said last month
the settlement would provide too little relief for her state's
A refinancing plan could lure California, which has some 2
million residents who owe more on their mortgage than their home
is worth, back to the table.