WASHINGTON (Reuters) - Talks between states and top banks over mortgage abuses are nearing agreement on a major sticking point that has bogged down settlement negotiations for more than a year.
A deal could be reached by the end of the month, according to three people familiar with the talks.
Under the proposed terms of the settlement -- which could total $25 billion -- banks would get broad legal immunity from state lawsuits in exchange for refinancing underwater loans, those mortgages where borrowers owe more than their homes are worth, the sources said.
The deal could provide some relief to the battered U.S. housing market and clear up some uncertainty about banks' legal exposure that has been a drag on their shares.
Banks have been holding out on a multi-billion-dollar settlement because they wanted broader legal immunity than state attorneys general were prepared to offer.
Originally, the states were only considering immunity for shortcuts taken during mortgage servicing and foreclosures, including the so-called "robo-signing" of documents to evict people behind on their mortgages.
In recent days, the state attorneys general agreed to release major banks from claims that they made legal errors when first originating the loans, such as approving loans for borrowers without verifying any income, according to two people familiar with the talks.
In exchange, banks would agree to refinance mortgages for borrowers who are current on their payments but owe more than their homes are currently worth, the sources said.
The deal is being negotiated between the states and several federal agencies on one side, and Bank of America Corp, JPMorgan Chase & Co, Wells Fargo, Citigroup, and Ally Financial on the other.
(Reporting by Aruna Viswanatha in Washington with additional reporting by Rick Rothacker in Charlotte; Editing by Tim Dobbyn)