Feb. 24 (Bloomberg) -- U.S. regulators probing flawed and illegal mortgage-foreclosure practices may try to extract $20 billion of penalties in a settlement with banks that serviced the loans, according to two people briefed on the talks.
Terms of the potential accord, from regulators led by the Treasury Department and Department of Housing and Urban Development, haven’t been formally presented to banks, according to the people, who spoke on condition of anonymity because the discussions aren’t public. Lenders embroiled in the investigation include Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co.
The government originally floated a $25 billion penalty, which banks rejected, one person said. Banks are resisting a large settlement because while regulators have found widespread flaws and violations in documents and procedures, the federal agencies said they so far have uncovered few examples of wrongful foreclosures.
Regulators are weighing whether the settlement should require servicers to write down mortgage principal that would lower home-loan payments for distressed borrowers, the person briefed on the talks said.
Details of the settlement talks were reported earlier in the Wall Street Journal.
Mortgage servicers drew scrutiny from federal bank and housing regulators and state attorneys general after evidence emerged in court cases that banks and their contractors submitted flawed or illegal paperwork in hundreds of thousands of foreclosure cases.
The so-called robo-signing scandal has slowed foreclosure and bankruptcy cases, clogged state courts and prompted a review of major financial companies.
Fines Announced Soon
Officials from HUD and the Office of the Comptroller of the Currency have said publicly that regulators may announce fines against servicers in the coming weeks.
The discussions between financial industry lawyers and regulators remain fluid and no formal offer has been presented, according to the people. In addition, the state attorneys general are proceeding with their own negotiations with the servicers, and would likely be part of any global settlement.
Spokesmen from the Treasury, HUD and other federal agencies declined to comment. Bank of America spokesman Dan Frahm, JPMorgan spokesman Tom Kelly, Wells Fargo spokeswoman Teri Schrettenbrunner, Citigroup spokesman Sean Kevelighan and Ally Financial Group spokeswoman Gina Proia declined to comment.
John Walsh, acting Comptroller of the Currency, said last week that his agency’s investigation had uncovered violations of state and local law but few wrongful foreclosures.
“The loan samples in our exams identified a small number of foreclosure sales that should not have proceeded because of an intervening event or condition,” Walsh told the House Financial Services Committee on Feb. 17.
Federal Housing Administration Commissioner David Stevens said the same day that any settlement could include mortgage modifications and civil fines paid to the Treasury.
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