Five major U.S. banks have agreed to pay $25 million to New York State over their use of an electronic mortgage database that the state said resulted in deceptive and illegal practices that led to more than 13,000 foreclosures.

JPMorgan Chase & Co, Bank of America Corp and Wells Fargo & Co each agreed to pay $5.9 million in order to partially settle a lawsuit over their use of the Mortgage Electronic Registration System (MERS),

Two other banks, Citigroup Inc and Ally Financial, also agreed to pay $5.9 million and $1.25 million respectively although they were not named in the February 3 lawsuit.

It was not immediately clear why Citi and Ally opted to participate in the settlement, although they are in the process of settling other similar claims.

All five banks in February reached a settlement with 49 states and federal agencies to pay $25 billion to resolve government lawsuits over faulty foreclosures and the handling of requests for loan modification.

In the New York settlement in February, none of the banks admitted nor denied the MERS allegations, the agreement said, a copy of which was obtained by Reuters on Tuesday.

MERS is an electronic database created in the mid-1990s for tracking mortgage ownership. New York State Attorney General Eric Schneiderman said in his lawsuit that the system was plagued by inaccuracies.

In exchange for the $25 million, New York State has agreed to drop some specific MERS claims. The state will use the money to address housing issues, such as mortgage defaults and foreclosures and further investigation and prosecutions.

Citigroup, JPMorgan and Ally declined to comment on the settlement, while spokespeople at the other two banks were not immediately available.

FUTURE LAWSUITS

Other allegations in the New York lawsuit have not been resolved and the state said it will still pursue claims for damages incurred by New York borrowers and homeowners.

We intend to aggressively litigate this case to finally prohibit the widespread illegal and deceptive practices of the banks set forth in our complaint, Danny Kanner, a spokesman for Schneiderman, said in an email on Tuesday.

The significant sum of $25 million obtained by this office does absolutely nothing to limit the aggressive posture we will continue to take to protect homeowners and borrowers.

The lawsuit said the use of MERS resulted in the filing of improper NY foreclosures and created confusion and uncertainty over property ownership interests.

Over 70 million mortgage loans, including millions of subprime loans, have been registered in the MERS system, rather than in local county clerks' offices, according to the lawsuit.

Nearly 11 million Americans owe more than their homes than they are worth, after home values fell 33 percent from a 2006 peak fueled by generous loans, often to people with dubious credit records.

The earlier $25 billion housing settlement gives President Barack Obama, as he seeks re-election in November, a chance to show he is willing to get tough with big banks to help ordinary Americans survive the pain of the nation's foreclosure crisis.

The deal, to be spread out over three years, requires the banks to cut mortgage debt amounts and extend $2,000 payments to borrowers who lost their homes to foreclosure. But the banks still face a host of other potential government enforcement actions and investor lawsuits related to their packaging of home loans into securities, and other mortgage-related activities.

In January, Obama announced the creation of a new working group to coordinate inquiries into abusive home-loan lending and the pooling of risky mortgages that sparked the housing crisis. Schneiderman was tapped to help lead the group.

(Reporting By Basil Katz; Editing by Michael Perry)

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