California, NY May Join Foreclosure Settlement as Deadline Looms

California and New York were expected to decide by Monday whether to join a settlement among states and major lenders over foreclosure fraud, potentially boosting the banks' aid to homeowners to $25 billion from $19 billion.

The deal targets major lenders who were found to use improper paperwork review, known as robo-signing, during prior foreclosure processes. The lenders include Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.

A 16-month investigation led to a virtual standstill in foreclosure processing in 2011, as banks suspended activity in the wake of the scandal.

Under terms being discussed, payments from the banks would go towards principal reductions for borrowers who have mortgages that are greater than their homes' value, as well as those who have lost homes to foreclosure.

California Attorney General Kamala Harris has resisted the settlement, saying that it does not do enough to help foreclosed homeowners. Officials from the state did not attend discussions for months, and the state has pursued its own legal actions. In December, California sued Fannie Mae and Freddie Mac to obtain foreclosure information from the mortgage giants.

But recently, California officials returned to negotiations, signaling potential support for a revised deal.

New York's Attorney General Eric Schneiderman, has also questioned the deal, which could exempt the banks from certain legal actions. Along with California, Schneiderman has been pushing for more oversight and not giving the banks complete immunity from further suits as part of the settlement.

Last week, New York's attorney general sued Bank of America, JPMorgan Chase and Wells Fargo, as well as mortgage database provider Mortgage Electronic Registration Systems, over foreclosure abuses.

Massachusetts, Nevada and Arizona have also filed separate legal actions against banks, which would be settled under the deal, but none of the three states have yet committed to the deal.

If enough states agree to the arrangement, a federal judge would then have to approve the settlement.