Attorneys general negotiating the settlement of a nationwide foreclosure investigation have yet to approach banks with a proposed dollar amount that would fund principal reductions for borrowers, a state official said.
The states have agreed on some terms while failing so far to reach an accord on monetary payments by lenders, a person familiar with the talks said last week. Eight Republican attorneys general have publicly challenged the concept of principal reductions as part of a 50-state settlement.
Last month, state officials and federal agencies, including the Justice Department, submitted settlement terms to five mortgage servicers, including Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) They called for a "substantial portion" of an unspecified monetary amount to go toward a loan modification program.
The six-month probe by the states was triggered by claims of faulty foreclosure practices following the housing collapse, which state officials said may violate their laws. Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, a Democrat who leads the investigation, said in an interview that the states haven't presented a dollar figure to the banks, declining further comment.
Any state agreement with servicers or banks on principal reductions will depend on the size of the writedowns, the incentives for the servicers built into the settlement and other details, which continue to be sorted out, said the first person familiar with the negotiations.
"Our position has been that principal reductions are one tool in the toolbox, and should only be used in appropriate circumstances," Iowa's Miller said yesterday in an e-mailed statement.
In addition to Bank of America and JPMorgan, also taking part in those agreements were San Francisco-based Wells Fargo, New York-based Citigroup, the GMAC unit of Detroit-based Ally Financial, Aurora Bank FSB, EverBank Financial Corp., HSBC Holdings Plc, OneWest, MetLife Inc., PNC Financial Services Group Inc. (PNC), Sovereign Bank, SunTrust Banks Inc., and US Bancorp.
Iowa's Miller said earlier this month that the state effort to reach a nationwide agreement would continue "unabated."