State Prosecutors Offer U.S. Banks Deal Over Robo-Signing Lawsuits

Big U.S. banks that have been in talks to settle claims of improper mortgage practices have been offered a deal. The deal, which has been offered by state prosecutors, will limit part of the banks’ legal liability in return for a multi-billion dollar payment.

Robo-Signing Banks Offered Settlement Deal

According to recent media reports, five people close to the deal are saying Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial are the main banks in talks to settle allegations that they had been using a practice known as robo-signing to illegally push foreclosures through the system without properly reviewing them or providing notary-public verified sworn affidavits.

In response to the allegations, state prosecutors are said to have come up with settlement language that might require these banks to pay somewhere in the ballpark of $10 billion to $25 billion. Also in the language is the possibility that they could be released from legal liability for wrongful securitization practices by paying the amount.

Banks had been under investigation since 2010 for their part in the robo-signing scandal, which resulted in many homeowners losing their homes without merit. After the scandal came to light, the banks said they would no longer engage in this practice. However, as recently as July 2011, it was discovered mortgage robo-signing continued. As a result, lawmakers called for hearings and pushed for greater oversight of banks.

Critics Say Deal is Too Lenient

Some state officials have expressed concern that the deal offered to banks is far too broad a release from liability. As it stands, the language could prevent state officials from having the authority to bring securitization claims in the future should they sign up for the agreement.

But others close to the matter say the broad language may have been unintentional and will likely be tightened as negotiations continue.

Banks are pressing for immunity in the talks, hoping to be released from a large number of alleged civil violations. They are calling the latest proposals a “non-starter.”

The two sides are expected to meet again this week to iron out their differences. While they are nearing an agreement on future standards that will govern the servicing of home loans, some say it may be some time before they are able to agree on legal liability, as well as the amount of money it will take to settle the allegations.