



To get a far-reaching settlement, the White House needs to get the approval of federal regulators, state attorneys general, and of course, the lenders themselves.

14 firms including Bank of America, Wells Fargo and JP Morgan, would be involved, according to the WSJ.

"Nothing has been finalized among the states, and it's our understanding that the federal agencies we are in discussions with have not finalized their positions," a spokesman for Iowa's Attorney General Tom Miller, who is leading a country-wide investigation of mortgage-servicing practices, told the paper.

Under the settlement:

  • Banks, not investors, would bear the cost of all writedowns
  • There would be no new government programs developed to reduce principal. Rather, the lenders will devise their own modifications or use existing government programs.
  • Banks will have to reduce second-lien mortgages when first mortgages are modified.

Issues with any settlement include the fact that principal reductions may result in other problems; there's questions over determining who gets approved for reductions and who misses out; even if the $20 billion figure is given the go-ahead by servicers, that figure would barely touch the sides of the mortgage mess -- "the number of mortgages that can be cured with that number is limited."

From the WSJ ,

If a single settlement can't be reached, different federal agencies could seek smaller penalties through regular enforcement channels, and banks could face the prospect of separate civil actions from state attorneys general.