Bank of America, Citigroup and Wells Fargo -- three of the biggest banks in the United States -- said they could face fines from a regulatory probe into the industry's foreclosure practices.

The statements, made in regulatory filings on Friday, are the most direct admission yet from major banks that they could have to pay significant amounts of money to settle probes and lawsuits alleging that they improperly foreclosed on homes.

Bank of America Corp , the largest U.S. bank by assets, said the probe could lead to material fines and significant legal expenses in 2011.

Wells Fargo & Co , the largest U.S. mortgage lender, said it is likely to face fines or sanctions, such as a foreclosure moratorium or suspension, imposed by federal or state regulators. It said some government agency enforcement action was likely and could include civil money penalties.

Citigroup Inc said it could pay fines or set up principal reduction programs.

The biggest U.S. mortgage lenders are being investigated by 50 state attorneys general and U.S. regulators for foreclosing on homes without having proper paperwork in place or without having properly reviewed paperwork before signing it.

The bad documentation threatens to slow down the foreclosure process and invalidate some repossessions.

Sources familiar with discussions among federal authorities have said they could seek as much as $20 billion in total from lenders to settle the foreclosure probe, which began last fall.

Analysts said the acknowledgment of potential foreclosure liabilities highlights the continuing struggles of the largest U.S. banks after the world financial crisis.

Are they trying? Sure, but this is not an easy fix and these kinds of problems are going to hang around the banks for years, said Matt McCormick, a portfolio manager with Cincinnati-based Bahl & Gaynor Investment Counsel.

McCormick said he has sold nearly all of his U.S. bank holdings because of concerns over foreclosures and other losses.

Beyond direct fines due to regulators, banks may also end up paying government-controlled mortgage giants Freddie Mac and Fannie Mae for the foreclosure delays.

Bank of America said it recorded $230 million in compensatory fees in the fourth quarter that it expects to owe the government mortgage companies.

The bank said its projected costs for settlements for all legal matters it is facing, including mortgage issues, could be $145 million to $1.5 billion beyond what it has already reserved.

Wells Fargo said that in the worst-case scenario, as of the end of 2010, it could have to pay $1.2 billion more than it has set aside to cover legal matters.

Citigroup said it could face up to about $4 billion more in losses from all sorts of lawsuits, including but not limited to those relating to mortgages and foreclosures.

Wells Fargo said in October that it plans to amend 55,000 foreclosure filings nationwide, amid signs that documentation for some foreclosures was incomplete or incorrect. Other banks made similar moves.

Other banks echoed the concern over foreclosures in a wave of annual report filings with the Securities and Exchange Commission on Friday.

Atlanta-based SunTrust said it expects regulators may issue a consent order, which will require the largest mortgage lenders to fix problems with their foreclosure processes, and potentially levy fines.

Wells Fargo shares closed 3.1 percent higher at $32.40 on the New York Stock Exchange. Bank of America shares closed 1.6 percent higher at $14.20 and Citi shares closed 0.2 percent higher at $4.70, also on the New York Stock Exchange.

(Reporting by Joe Rauch, Clare Baldwin and Maria Aspan; Editing by Gary Hill)

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