Banks and states to meet on foreclosure probe

WASHINGTON Wed Mar 30, 2011 3:04am IST

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WASHINGTON (Reuters) - The big U.S. banks and state attorneys general negotiating a settlement over alleged mortgage servicing abuses will meet on Wednesday at the U.S. Justice Department, according to sources briefed on the meeting.

The banks and authorities are expected to discuss a settlement proposal that the AGs sent out earlier this month, calling on banks to treat borrowers better and to reduce loan balances for some struggling homeowners.

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.

On March 3, state attorneys general leading the probe sent banks the outline of a proposed settlement 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, highlighting how difficult it will be for all the officials to reach a coordinated settlement with the banks.

The banks that received the proposal and that will have representatives at Wednesday's meeting are Bank of America Corp, JPMorgan Chase & Co, Citigroup Inc, Wells Fargo & Co and Ally Financial, according to sources briefed on the meeting.

The state probe is being led by Iowa Attorney General Tom Miller who heads an executive committee comprised of 13 state AGs.

Representatives from the federal agencies that endorsed the state's proposal are also expected to attend.

The March 3 settlement offer included a controversial proposal of having servicers 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.

Banks have balked at this approach and parts of the broader proposal, as have some Republican state attorneys general.

(Reporting by Corbett B. Daly and Dave Clarke; Editing by Tim Dobbyn)