By Rachelle Younglai and Dave Clarke
WASHINGTON (Reuters) - Leading House Republicans said they have "significant concerns" about the financial market impact of a proposed mortgage servicing settlement sent to large banks last week.
The concerns are outlined in a letter, obtained by Reuters, that a group of Republicans on the House Financial Services Committee plan to send to Treasury Secretary Timothy Geithner on Wednesday.
"The breadth and scope of the draft settlement proposal raise significant concerns about its effect on the financial system, as well as concerns that the administration and state agencies are attempting to legislate through litigation," the letter reads.
The letter is expected to be signed by committee chairman Spencer Bachus and panel members Scott Garrett, Randy Neugebauer and Patrick McHenry, according to a source with direct knowledge of the discussions.
On March 3, the state attorneys general sent a 27-page proposal to the five largest mortgage payment collectors on how they should change their procedures but it did not include a proposal for what type of fine these banks should pay -- an issue still being debated by state and federal regulators.
The proposal has the support of the U.S. Housing and Urban Development Department, the Justice Department, the Federal Trade Commission and Treasury Department staff setting up the Consumer Financial Protection Bureau, said Iowa Attorney General Tom Miller on Monday. Miller is heading up the states' probe of mortgage servicing problems.
U.S. regulators and a coalition of state attorneys general are negotiating with mortgage lenders including Bank of America Corp, JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co.
Banks were accused of using "robo-signers" to sign hundreds of unread documents a day and maintaining sloppy foreclosure paperwork.
"If the terms of the draft settlement are implemented as proposed, the settlement would transform the mortgage servicing industry and fundamentally change the rules that have historically governed relationships among borrowers, servicers and investors," says the letter from the lawmakers.
(Reporting by Dave Clarke and Rachelle Younglai; Editing by Tim Dobbyn)