The figure doesn't cover additional billions of dollars in potential claims from federal agencies such as the Department of Housing and Urban Development and the Justice Department. State and federal officials haven't proposed a specific comprehensive settlement figure, but Tuesday's discussions represented the first effort to formally quantify potential liability.
Representatives of the nation's largest banks met in individual meetings on Tuesday with state and federal officials designed to highlight the potential costs they will face if a settlement isn't reached.
Banks and federal officials have made halting progress over two months to settle allegations of abuses related to mortgage servicing, and the numbers floated Tuesday indicate that the two sides are still far apart on the size of the penalty.
Banks have proposed a $5 billion settlement that would be used to compensate any borrowers previously wronged in the foreclosure process and provide transition assistance for borrowers who are ousted from their homes. Federal and state officials have dismissed that as insufficient. Some officials have pushed for a total price tag of more than $20 billion to resolve foreclosure-handling abuses that surfaced last fall.
State attorneys general from all 50 states and the District of Columbia announced investigations last fall. Tuesday's discussions highlighted the potential for lawsuits alleging unfair and deceptive practices if a settlement isn't reached.
The U.S. Trustee Program, a part of the Justice Department that oversees bankruptcy cases, has asked for an additional $500 million to $1 billion in penalties, according to people familiar with the matter. Officials of the unit have raised questions in several cases over the authenticity of foreclosure documents.
Banks have argued that their problems are largely technical and that few if any borrowers have faced wrongful foreclosures. State and federal officials have faulted mortgage companies for not hiring enough staff to provide assistance to millions of borrowers that have fallen behind on their mortgages.
The latest development comes as state and federal officials are intensifying their scrutiny of other parts of the mortgage machine. Attorneys general in California and New York have announced wide-ranging mortgage investigations.