Mortgage writedown proposal advances in U.S. probe

* Principal reductions part of settlement proposal

* Bank fines still being negotiated

By Corbett B. Daly

WASHINGTON, March 4 (Reuters) – U.S. banks have been asked
to forgive some of the amount owed on troubled mortgages in a
proposal sent to them by state attorneys general and federal
agencies, according to a source with knowledge of the
negotiations.

The 27-page proposal sent on Thursday is part of a broader
effort to get banks to agree to a settlement after they were
accused last year of taking possibly illegal shortcuts in some
foreclosure proceedings.

Banks were accused of using “robo-signers” to sign hundreds
of unread documents a day and maintaining sloppy mortgage
paperwork.

The proposal also includes a “code of conduct” that
servicers should follow when foreclosing on properties.

It includes encouraging them to do principal writedowns to
keep borrowers in their homes and provide a single point of
contact for borrowers in foreclosure proceedings, the source
said.

U.S. regulators and a coalition of state attorneys general
are negotiating a settlement over the servicing problems with
the biggest mortgage lenders, including Bank of America Corp
(BAC.N: Quote, Profile, Research), JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) and Wells Fargo & Co
(WFC.N: Quote, Profile, Research).

According to the source, the proposal has the support of
the state attorneys general and 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.

These agencies are also working with banking regulators,
the Office of the Comptroller of the Currency, the Federal
Reserve and the Federal Deposit Insurance Corp, to craft a
broader settlement that would include fines on the banks.

The 27-page proposal does not include proposed fines and
was first reported by the Wall Street Journal.
(Reporting by Corbett B. Daly and Dave Clarke, Editing by Tim
Dobbyn)