State attorneys general have launched talks with big banks accused of illegally foreclosing on homeowners with the hopes of reaching a deal that could result in more mortgage modifications, a top negotiator said Monday.
Iowa Attorney General Tom Miller has been leading a 50-state probe into mortgage servicers' foreclosure practices since October.
The negotiations are between the attorneys general and federal agencies on one side, and the five largest mortgage servicers, which comprise 59% of the market.
The AGs did not indicate which banks they are negotiating with. However, the five largest servicers are Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Ally Financial (GJM), according to Inside Mortgage Finance.
Miller refused to confirm reports that the talks have included a proposed $20 billion settlement or a requirement that servicers provide that amount in mortgage modifications to underwater homeowners.
But the final deal could have a major impact on the housing market, making it easier for homeowners to get mortgage modifications, including reductions in the principal amount they owe on their house in some cases, Miller said.
Federal and state officials gave the mortgage servicers a 27-page opening offer late last week but Miller refused to give details of the offer, citing the ongoing negotiations.
So far, the federal government has shied away from forcing banks to offer principal reductions. Instead, the priority has been to lower interest rate payments. And several congressional efforts to pass bills allowing bankruptcy judges to modify loans have all failed.
"We realize the result we come to can have an impact on the housing market and hence the economy," said North Carolina Attorney General Roy Cooper. "That's why all of us at the table want it to be a positive impact."
However, Miller also added that the first offer made to the servicers lacked specifics on the two "most important" things: a proposed settlement figure and a proposal to make way for more mortgage modifications.
The big reason it was missing was because: "We struggled with it."
"Whatever that proposal is, it's going to have some limitations and leave some people out," Miller said.
The government probe of mortgage servicers followed reports that the institutions were using shoddy documentation to improperly foreclose on homeowners. That news prompted several servicers to halt foreclosures for a short period of time.
The attorneys general launched the probe in October to review improper documentation and mortgage modifications.
The government agencies involved include states attorneys general, the Department of Justice, the Department of Housing and Urban Development, the Department of Treasury, the Federal Trade Commission as well as the new Consumer Financial Protection Bureau.
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