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A multibillion-dollar deal with big banks to clean up the foreclosure fiasco is falling apart as a handful of holdouts balk at key terms of the proposed settlement put together by state attorneys general and federal regulators, The Post has learned.
State and federal officials have been hammering out a settlement for months but discussions have dragged out because of several thorny issues, including whether to release banks from future liabilities.
With each passing day, prospects are dimming for a deal that would have major mortgage servicers — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — shell out as much as $25 billion in fines for their handling of faulty foreclosures, sources said.
“We are approaching a time when attorneys general have to make some decisions as to whether this [settlement] is going to happen,” a source said.
Instead, the plan that could emerge is one in which states strike out on their own to reach individual settlements. Another possibility is states forming one or more smaller alliances in hopes of striking deals.
However, a smaller pact that doesn’t include large states such as Florida or New York could run into resistance from big banks, which are eager to put the foreclosure fiasco behind them.
Mounting mortgage losses and litigation already are taking their toll on banks’ financial results. The banks are hoping that a broad settlement with the states and federal regulators will put to rest the “robo-signing” scandal and other foreclosure lapses.
But sources said the talks have turned “contentious” recently with some attorneys general taking a hard line against any agreement that calls for reducing the principal for “underwater” homeowners.
State attorneys general Pam Bondi of Florida, Kenneth Cuccinelli of Virginia, Greg Abbott of Texas and Alan Wilson of South Carolina are among those who take a dim view of so-called principal reductions.
Others, including Massachusetts Attorney General Martha Coakley and New York Attorney General Eric Schnei derman, have been criti cal of any plan that would release big banks like BofA from future li ability.
Schneiderman is cur rently challenging a separate $8.5 billion settlement between Bank of America and 22 large institutional investors over losses re lated to their purchase of soured mortgage- backed securities.
“There’s a lot to be said about this being described as herding cats,” said one source close to the talks. “They have to decide if they are willing to put some objections to some issues aside for the greater good of what we are trying to address.”
The disintegration of the settlement comes as stock markets are going haywire and concerns grow that the US economy — dragged down by the weak housing market — is entering into a double-dip recession.