U.S. foreclosure deal slowed by infighting: sources

CHARLOTTE, N.C./WASHINGTON (Reuters) - U.S. regulators' efforts to settle with banks over improper mortgage foreclosures are being hampered by disagreements among the groups involved over the size and shape of an accord, according to sources familiar with the matter.

Banking regulators and a coalition of state attorneys general are trying to forge a settlement with the largest U.S. banks, which have been accused of foreclosing on borrowers without having the necessary paperwork in place.

A settlement would relieve a potentially large legal liability and reputational black eye for the banks, as they could face a myriad of lawsuits and fines without a universal agreement.

Sources familiar with the talks say the various groups disagree on the parameters of a settlement, with bank regulators pushing to outline a settlement plan as soon as mid-March.

Analysts said the discussions highlight the difficulties of reaching a universal settlement as disparate groups are involved in the negotiations.

"It is herding cats, there's no question about it, and they are not always the most agreeably tempered cats," said Karen Shaw Petrou, managing partner at Federal Financial Analytics, a firm that advises on regulatory policy.

For example, the members of the Treasury team setting up the new Consumer Financial Protection Bureau, along with the Federal Deposit Insurance Corp, have been pushing for a larger financial settlement than the Office of the Comptroller of the Currency, the sources said.

The Federal Reserve appears to be somewhere in the middle and has not backed the OCC's approach, as regulators continue to focus on the size of the penalty for improper foreclosures.

Spokesmen for several of the federal agencies involved in the talks were not immediately available for comment.

U.S. Department of Housing and Urban Development spokeswoman Melanie Roussell and OCC spokesman Bob Garsson declined to comment.

Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, said on Wednesday that the attorneys general were "approaching a very sensitive time of negotiations."

Miller is spearheading the 50-state attorneys general probe into mortgage lenders' foreclosure practices.

"There are a number of federal agencies involved here, and not all agencies have the same ideas of where they should go," Greenwood said, adding that it "may not be accurate" that any universal settlement would apply the same language to all parties, including the attorneys general.

He declined to comment on what specific remedies the attorneys general coalition would seek, or the status of the group's investigation.

One proposal being pushed by negotiators looking for the biggest settlement, such as the incoming consumer agency, would have the attorneys general and federal agencies signing off on what would amount to about a $20 billion settlement, according to a source familiar with the matter.

That number was first reported by The Wall Street Journal on Tuesday.

There is, however, no agreement on that figure among all regulators involved who continue to debate the issue.

Another question regulators are wrestling with is whether and how much of the settlement should go toward helping struggling homeowners.

The homeowners' aid could be either principal forgiveness for qualifying borrowers or loan modifications, the source said. But how to structure the plan so banks would have to follow it is another challenge.

It is unclear how much aid any agreement would provide to consumers, particularly as some lawmakers are seeking to repeal existing aid programs.

On Thursday, U.S. House Republicans said the House Financial Services Committee would vote on a bill on March 3 that would end the Home Affordable Modification Program, the Obama administration's key foreclosure rescue program.

Last fall, the biggest U.S. mortgage lenders -- including Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co and Ally Financial Inc's GMAC Mortgage -- temporarily halted or refiled paperwork on foreclosures nationwide.

The attorneys general probe into the matter began soon after, and the Securities and Exchange Commission, the Department of Justice and bank regulators have opened their own inquiries.

(Additional reporting by Scot Paltrow, Corbett Daly and Rachelle Younglai in Washington and Dan Levine in San Francisco; editing by John Wallace, Gerald E. McCormick and Matthew Lewis)