Foreclosure deal has 40 states, but others balk

Housing Secretary Shaun Donovan is one of the participants in the foreclosure settlement talks that are expected to produce a mortgage settlement soon.

WASHINGTON (CNNMoney) -- More than 40 states have signed on to a draft settlement with the nation's largest banks aimed at helping homeowners struggling with loans bigger than the value of their homes.

But several key states -- including California, New York, Nevada, Florida and Delaware -- remain undecided, sources familiar with the negotiations tell CNN.

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"The sign-on deadline for the proposed joint state-federal mortgage servicing settlement passed Monday with more than 40 states," said Iowa Attorney General Thomas Miller, who has been leading negotiations that have spanned nearly a year. "This enables us to move forward into the very final stages of remaining work."

Attorneys general from California, New York and Delaware, who have all been cold to the deal in past weeks, are still talking with negotiators and may yet signal their participation, according to sources familiar with the talks.

Attorneys general from Florida and Nevada also have issues, but are still at the negotiating table.

"My office is continuing to review the intricate draft settlement terms and advocating for improvements to address Nevada's needs," said Nevada's Attorney General Catherine Cortez Masto.

Federal officials and state attorneys general could announce -- perhaps as early as this week -- the deal with some of the nation's largest banks that could yield up to $25 billion for qualified homeowners. That would be more than any housing relief program has produced since the financial crisis began.

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Under the latest draft, about 1 million U.S. homeowners who are "underwater" on their mortgages -- with principal exceeding the home's value -- could be eligible for as much as $20,000 in relief of principal owed, according to U.S. Housing and Urban Development Secretary Shaun Donovan.

In return, mortgage servicers in states that agree to the deal would get immunity from future state servicing and originating claims -- although homeowners could pursue claims against banks and states could still pursue criminal investigations, according to reports.

Driving the deal originally were allegations that mortgage servicers cut corners and enlisted robo-signers that improperly foreclosed on homeowners. However, the deal under negotiation now wouldn't be able to return houses to those who have already been foreclosed on, according to reports.

What the deal would do is ensure that mortgage servicers agree to communicate better, avoid delays and give homeowners who are late on mortgage payments a fairer shake.

The big question is how much money would be available to help homeowners, but that depends on how many states agree to the deal. If all 50 states sign on, the mortgage servicing settlement has the potential to offer as much as $25 billion. But without California, the nation's largest state, the pot would be several billion dollars smaller.

Last week, California's Harris and Attorney General Beau Biden of Delaware said the deal, as drafted, wasn't good enough for their states.

New York's Schneiderman was tight-lipped about his participation when asked. Calls to his office on Monday weren't returned.

Generally, the attorneys general have said they're worried they if they agree to the deal it would cripple their own investigations into mortgage cases.

But California's Harris is more comfortable that the deal will leave her room to pursue her own investigations and lawsuits, a source close to the talks told CNN. However, she had not signed on as of Monday night.

At least one consumer advocacy group, the Center for Responsible Lending, has said the deal -- while "no silver bullet" -- leaves room to hold banks accountable in other mortgage probes, said Kathleen Day, a spokeswoman for the nonprofit.

The negotiations are between federal agencies, including the U.S. Department of Justice and the U.S. Department of Housing and Urban Development, as well as the state attorneys general and the five largest mortgage servicers:Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Ally Financial (GJM). A few other regional banks that service mortgages are reportedly considering signing on as well.

The big banks aren't as keen to sign off on a multi-state deal that doesn't include immunity from mortgage servicing claims from California's and New York's attorneys general, said a source familiar with the deals.

And left-leaning groups, including Move On and the New Bottom Line, are continuing to urge states to hold out for a big criminal investigation and a $300 billion settlement award.

-- CNN's Jessica Yellin and Lesa Jansen, and CNNMoney's Erica Fink contributed to this report.