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Government, banks wrestle over settlements in botched foreclosure paperwork mess

WASHINGTON — Federal and state officials are analyzing proposals that could help people who have lost their homes or missed mortgage payments as a key part of resolving a multibillion-dollar case over botched foreclosure paperwork.

Government negotiators are wrestling with banks and their mortgage servicing arms over the amount of the settlement — from $5 billion to $20 billion — and then must decide how best to use the money.

"We are getting close to a critical phase of negotiations," said Geoff Greenwood, spokesman for Iowa Attorney General Tom Miller, who is leading attorneys general from all 50 states in investigating mortgage foreclosure problems.

One of the most delicate issues is determining how to aid homeowners without further damaging the housing market.

Should the money, for example, go only to people whose mortgages were directly affected by faulty robo-signed documents — those signed without being reviewed by anyone — or should it be spread broadly to all troubled homeowners?

Under one proposal, people who already have lost their homes could get cash payments or access to new mortgages at special low rates, said two government officials familiar with the talks who asked to not be identified.

Another proposal, they said, would force major servicers, including Bank of America Corp. and Wells Fargo & Co., to provide a total of $20 billion to reduce principal on troubled mortgages — and eat the costs, not pass them on to mortgage investors.

Rep. Maxine Waters, D-Calif., said $20 billion for principal write-downs is not enough money. At the end of September, the total amount of negative equity — how much borrowers nationwide were underwater — was $744 billion, according to real estate research firm CoreLogic.

But others say writing down principal could cause more problems by encouraging homeowners to stop making their monthly payments, hoping to score a reduction in what they owe.

Competing agendas of government agencies and potential flak from mortgage servicers could force separate settlements and delay an overall resolution more than a month, the officials said.

Government, banks wrestle over settlements in botched foreclosure paperwork mess 03/03/11 [Last modified: Thursday, March 3, 2011 10:50pm]
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