March 7, 2011 / 11:42 PM / 9 years ago

UPDATE 1-Iowa AG looks to foreclosure deal within 2 months

* Iowa AG Miller says negotiations to start soon

* N.C. AG Cooper says money amount to be a hot point

* States sent servicing proposal to banks last week (Adds Cooper quote, details from proposal)

By Dave Clarke

WASHINGTON, March 7 (Reuters) - The Iowa attorney general, who is leading the 50-state probe into mortgage foreclosure problems, said on Monday that he hopes to have a settlement with the nation’s biggest banks in the next two months.

U.S. regulators and a coalition of state attorneys general are negotiating with the biggest mortgage lenders, including Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N) and Wells Fargo & Co (WFC.N).

The probe is the result of problems that burst into public view last year of banks taking possibly illegal shortcuts in some foreclosure proceedings, such as using “robo-signers” to sign hundreds of unread documents a day.

On March 3, the state attorneys general sent a 27-page proposal to the five largest mortgage payment collectors on how they should change their procedures but it did not include a proposal for what type of fine these banks should pay — an issue still being debated by states and federal regulators.

Iowa Attorney General Tom Miller said that along with federal regulators, states will now begin negotiating a settlement with banks and gave two months as a rough timeline for getting something done.

“That’s a hope, we are going to move as fast as we can,” he he told reporters at a National Association of Attorneys General conference.

Still to be decided is the much thornier issue of how large a fine or monetary penalty banks should pay as part of the settlement.

The attorneys general and the U.S. Treasury staff setting up the new Consumer Financial Protection Bureau have been seeking a penalty that would amount to about $20 billion to help fund a loan modification program. The Office of the Comptroller of the Currency, which regulates national banks, does not want to go that high, according to sources familiar with the negotiations.

“I think that one is going to be a hot point in the negotiations,” said North Carolina Attorney General Roy Cooper, who attended Monday’s news conference.

The 27-page proposal sent last week, a copy of which was obtained by Reuters, asks banks and other lenders to make sweeping changes to how they service home loans.

Miller said the proposal has the support of the U.S. Housing and Urban Development Department, the Justice Department, the Federal Trade Commission and Treasury Department staff setting up the financial protection bureau.

The proposal makes clear the reducing a loan’s principal should be pursued if that is the best option for keeping a borrower in their home. The document says, however, that a comprehensive principal write-down program will likely have to be part of the broader settlement being pursued with banks, which have been reluctant to reduce the principal owed.

Under the settlement proposal, mortgage servicers would have to offer to modify a borrower’s loan in some way if doing so would cost the lender less over time than foreclosing on a borrower. (Reporting by Dave Clarke; Editing by Bernard Orr and Tim Dobbyn)

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